Democratic presidential front-runner Hillary Clinton cited economist Alan Krueger during a debate Saturday to defend her position that the federal minimum wage, currently $7.25 an hour, should be $12 an hour, not the $15 that many liberals activists are calling for.
Krueger’s position, in turn, is based mainly on three studies, only one of which specifically looked at the potential impact of a $12 minimum wage.
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Of the three, only one involved recent data in a major country — specifically, the impact of the United Kingdom’s minimum wage, which it first adopted in 1999. However, the U.K. minimum wage is the equivalent of $10.20, not $12. Asked by the Washington Examiner what, if any, other research he was using, Krueger did not cite any.
“See my NYT article for your other questions,” Krueger said, referring to a widely cited October New York Times column he wrote endorsing a $12 minimum wage. The column cited the UK study; an April report by the Economic Policy Institute, a liberal think tank backed by organized labor; and a 1994 study co-authored by Krueger on the impact of New Jersey raising its rate.
The column was apparently convincing to Clinton. Asked why she was not backing a $15 minimum wage like rival candidates Sen. Bernie Sanders, I-Vt., and Martin O’Malley, she said, “I do take what Alan Krueger said seriously. He is the foremost expert in our country on the minimum wage, and what its effects are. … That is why I support a $12 minimum wage.”
Krueger, a professor of politics at Princeton University and former chairman of the president’s Council of Economic Advisers, writes in the Times column that a $12 rate “will do more good than harm for low-wage workers.” He added, though, that “available research cannot precisely answer” at what level workers would be harmed.
Krueger’s New Jersey study looked at the state’s 1992 increase from $4.25 an hour to $5.05, or about $7.25 to $8.60 in today’s dollars. It found the increase did not affect hiring at Garden State fast-food joints in the Garden State.
The Economic Policy Institute study Krueger cited argued that the U.S. rate in 1968, $1.60, would be about $12 an hour today, once adjusted for inflation and other factors. Institute economist Dan Cooper said that was based on one of the metrics that economists often use to evaluate the minimum wage: its ratio to the median wage. That is sometimes called the “bite” of the minimum wage. In 1968, the bite was 52 percent.
“We estimated that $12 in 2020 would have a bite of 54 percent of the national median wage. In the U.K. government paper … they estimate that their minimum wage is equal to 53.9 percent of their median wage. So the ratio is comparable,” Cooper said.
The current U.K. minimum rate is 6.70 pounds sterling, which under current exchange rates is about $10.20. Krueger said the U.K. study was still a good comparison to the U.S. because the main Democratic $12 proposal, introduced by Sen. Patty Murray, D-Wash., wouldn’t be fully implemented until 2020.
“For your comparison to the U.K., you need to put that in current dollars. If inflation is around 2 percent a year, the Murray proposal is for a minimum wage that is very close to the UK’s (current) minimum wage,” he said in an email.
In other words, a $12 rate in 2020, assuming Krueger’s rate of inflation, would be the equivalent of $10.86 today. That would be closer to, but still higher than, the current U.K. rate.
Those comparisons don’t tell us much about what raising the current nation rate to $12 an hour would do, countered Douglas Holtz-Eakin, former director of the Congressional Budget Office under President George W. Bush and now president of the American Action Forum, a conservative leaning think tank. The most important factor is how much the rate is raised by from one year to the next.
“The move from where we are to $12 or $15 is a very big move. They did not move that big between, say, 1967-68. It is the change in the wages that drives the impacts on employment and other fallout on the minimum wage. So you want to look at the degree of change, not the level,” Holtz-Eakin said.
The federal minimum rose from $1.40 in 1967 to $1.60 the following year, an increase of about 14 percent. Raising the minimum by $4.75, as Clinton proposes, would be an increase of about 65 percent.
Holtz-Eakin said there isn’t much point in comparing the U.S. and the U.K. economies “They have completely different labor markets and completely different sets of social programs,” he said.
The study said, nevertheless, that the minimum wage, adopted in 1999, had “led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy.” Unemployment there is 5.3 percent, close to the official U.S. rate of 5.0 percent.
However, the report also found that there were several trade-offs involved, including higher prices for consumers, lower profits for business and reductions in hours for workers.
“For the most part, it appears that firms may have found it easier to increase the prices of minimum wage goods and services … to consumers rather than to other businesses,” it found. In real terms, the U.K.’s minimum wage peaked in 2007 and by 2013 its value had declined by 5 percent.
Underemployment was a concern, too. An estimated 1.4 million British workers now have “zero hour contracts,” meaning they have no guarantee for a minimum number of hours in a week. That’s up from just 225,000 workers when the wage law was adopted.
Meanwhile, wages overall have stagnated. “The strong employment growth might suggest that the labour market should be tightening, resulting in increased wage pressure. However, we have already shown that, as yet, there seems little sign that this has occurred. Wages have continued to stagnate even as many more people have found work. It appears to be the case that a falling unemployment rate is only one indicator of tightness in the labour market,” the report found.
There are also some significant differences between the U.S. and U.K. minimum wages. The U.S. minimum is a flat rate for all with only a handful of exceptions, such as small farm workers. The U.K. allows employers to pay the equivalent of $8 an hour to workers between 18 and 20 years of age and less than $6 an hour to workers 18 and younger. People who are apprenticing in professions can be paid as little as $5 an hour.
People 20 or younger account for about 13 percent of the country’s minimum wage workers, though. That’s because employers stopped hiring them. “The proportion of 18-20 year olds in work, excluding students, fell from nearly half in the early 1990s to under 40 percent in 2008 before plummeting to 30 percent in 2012,” the report found.
