What Good Is A Minimum Wage?

Jamelle Bouie asks Republicans: “If raising the minimum wage destroys jobs and prevents employment, then lowering it would do the opposite. And if you gain from lowering the minimum wage, then why have one at all?” Ramesh Ponnuru answers:

For one thing, it’s not just opponents of a higher minimum wage who think it would destroy jobs while a lower one would create some. Almost everyone who has thought about this question believes these claims are true. Most proponents of a higher minimum wage think the trade-off is worth it because the job loss will be small and the benefits to people who will receive the higher wage large.

Opponents of an increase sometimes say to the proponents, “If $10.10 is such a good idea, why not $25?” This is not a great argument, because the proponents can reasonably say that the trade-off in that case would be much worse. But if it’s logically possible to favor a $10.10 minimum wage but not a $25 one, then it’s also possible to favor a $7.25 one and not a $10.10 one. (Tim Pawlenty, one of the Republicans Bouie mentions, wants one somewhere in between $7.25 and $10.10.) So an opponent of raising the minimum wage to $10.10 could answer Bouie’s question as follows: Yes, raising the minimum wage destroys jobs, as nearly everyone understands. I think it is an especially bad idea when the increase is nearly of 40 percent and it’s in the middle of a persistently weak labor market.

But Jordan Weissmann points out that abolishing the minimum wage wouldn’t necessarily lead to full employment:

It’s easy to think up reasons why nixing the minimum wage might not lead to a flood of new career opportunities for the unskilled. Because we have minimum wages today, businesses are required to work at a certain level of efficiency. Unless a business is understaffed, adding a new worker, even a cheaper one, might not be particularly profitable.

Or take technology.

Minimum-wage skeptics often point out that when employing a real live human being becomes too expensive, companies start buying computers and machinery instead. In a post-minimum-wage world, it seems unlikely that businesses would suddenly throw their profitable business models into reverse, and start scooping up cheap workers to handle tasks they had already purchased fancy new equipment to accomplish. Your local McDonald’s, for instance, wouldn’t suddenly return the fancy new soda machine that lets customers fill their own cups with umpteen variations on Diet Coke, just so that it could hire another person to work behind the counter for $4 an hour.

Of course, there’s another big question to answer: If we ripped up the wage floor, would pay for low-skill workers actually fall all that much? It’s hard to say. First, many low-wage businesses still offer their workers more than the absolute minimum. Second, wages tend to be “sticky,” meaning that once they go up, they tend not to come down. The reason why is still a bit of a mystery, but it likely has a lot to do with the fact that making your employees take a pay cut is a) emotionally unpleasant for both parties and b) a good way to sap their motivation on the job.

The minimum wage also has non-economic benefits, such as a clear correlation with happiness:

Can one approach be empirically demonstrated to contribute to greater levels of human well-being? The following graph is at least highly suggestive of an answer. It plots the mean level of life satisfaction in a nation against its minimum wage (for those industrial democracies that have a minimum wage). As is apparent, the slope relating wages to satisfaction is positive (and statistically significant at the .01 level), meaning that average levels of life satisfaction increase as minimum wage increases. …

The relationship is dramatic and clear: As the minimum wage increases, people are in general more satisfied with their lives. To be sure that this result is not an artifact of failing to consider alternative explanations, we note that the same positive relationship continues to obtain if we add statistical controls for other factors, including as a country’s level of economic development (GDP per capita, again in purchasing power parity), which may affect both its level of happiness and the level of its minimum wage, and (simultaneously) short-term economic performance (the unemployment rate).