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Sunday, February 17, 2013

Minimum Wage a Winner Both Politically and Economically

President Obama's proposal to raise the minimum wage to $9.00 per hour puts the Republicans between a rock and a hard place politically. Paul Krugman echoes the point that a big majority of the population supports a minimum wage increase, including a majority of Republicans (his linking to the original poll source appears to have crashed that website, but I will update later). Yet the Republican leadership remains trapped because it opposes this increase as well as any alternative policy that might make the poor better off, such as increasing the Earned Income Tax Credit or endorsing a Guaranteed Minimum Income (points Matthew Yglesias makes in the link above). As further evidence, the minimum wage increase Proposition B in Missouri in 2006 passed 76-24, probably helping Senator Claire McCaskill to her first Senate victory with under 50% of the vote.

 Moreover, much recent research (via Think Progress) shows no "job killing" effects from raising the minimum wage. As originally shown by David Card and Alan Krueger, there was strong evidence of "publication bias" in the studies underlying the former economists' consensus that the minimum wage reduced jobs. That is, economics journals tended to prefer to publish studies with statistically significant results and not publish those showing no effect from the minimum wage. Researchers thus adjusted their statistical specifications until they achieved statistical significance, thereby generating a mass of studies that all barely reached statistical significance despite larger volumes of data which should have produced stronger results. As the Schmitt paper emphasizes, more recent studies of studies ("meta-analysis") continues to support the conclusion that the purported job killing effect was a mirage.

As I have pointed out before, cross-national comparisons of the minimum wage and unemployment rates also do not support the view that the minimum wage is the job killer Republicans claim it is. Indeed,  as in my September 2011 post, nine OECD countries have higher minimum wages rates than the U.S. does on a purchasing power parity basis that adjusts for the cost of living, yet only two have higher unemployment rates (France and Ireland), while the U.K.'s unemployment rate is the same. The table below illustrates this and underscores the point that the minimum wage is a winner for the middle class.

2011 Min Wage (PPP$)
Unemployment Rate % Dec. 2012








New Zealand
6.9 (Q4)
United Kingdom
7.8 (Oct 2012)
United States


For 2011 real minimum wage at PPP, click on "statistics by theme," then "labour," then "Real hourly minimum wages," then adjust the series to "In US$ PPP." For unemployment, click on "statistics by theme," then "general statistics," then "key short-term indicators," then "harmonized unemployment rates."

Cross-posted at Angry Bear.

1 comment:

  1. Employers are indecent to not pay a man a wage that pays their bills. Support the passage of legislation of $9.00 an hour. Hillary Clinton would have had the minimum wagers in the soup lines starving because the moment you get a raise..the company would lay off the entire crew and rehire at the minimum wage level to cut company expenses or send the job overseas to get their products made with $2.00 hour labor in China/Japan/India/ or Mexico!! Give us our pay to cover rent,utilities, food, auto ins, health ins, etc...and recreation.
    Support my petition to the congress/senate.
    Go to my site
    Thanks for your support