In a recent column, Paul Krugman argued that opposition to increasing the federal minimum wage from $7.25 per hour to $15 per hour is a “radical” position because it refuses “to accept the conclusions of mainstream economics.” This simply isn’t so.
Traditionally, most economists opposed the minimum wage. Although it increased the incomes of low-wage workers who retained their jobs, it was thought to lead to significant job losses. But that consensus, that minimum wage had substantial negative effects on employment, began to change in 1993 when David Card and Alan Krueger published a study suggesting the contrary. They purported to show that employment among fast food workers in New Jersey actually increased after the state raised its minimum wage. The Card and Krueger study has been criticized, and other studies have arrived at different results. But it seems fair to conclude that most economists now believe that the negative employment effects of moderate increases in the minimum wage are likely to be small.
However, Krugman is still mischaracterizing mainstream opinion. Yes, economists have changed their views about small and moderate increases in the minimum wage, but it does not at all follow that they would endorse more than doubling the federal minimum wage to $15 per hour. Indeed, many economists, including those at the nonpartisan Congressional Budget Office, still believe that such a large increase in the federal minimum wage could result in significant job losses.
The Booth School of Business at the University of Chicago periodically surveys prominent economists of varying political persuasions. In response to the question, “If the federal minimum wage is raised gradually to $15-per-hour by 2020, the employment rate for low-wage U.S. workers will be substantially lower than it would be under the status quo,” 30% of the economists responding agreed, 43% were uncertain, and only 27% disagreed. This survey is from 2015, but there’s no particular reason to believe that professional opinion has changed substantially since then.
Krugman implicitly equates small employment losses due to minimum wage hikes with no losses at all. Very few economists believe that the job losses would be zero. In 2019, the Congressional Budget Office studied raising the minimum wage to $15 per hour by 2025 and found that although 17 million workers would experience an increase in their wages, between 1.3 million and 3.7 million workers would lose their jobs. Economists at the University of Washington studied the 2015 and 2016 increases in Seattle’s minimum wage and found that hours worked by low-wage workers declined by 6% to 7%. This meant that even though wages increased, the total income of low-wage workers fell. In addition, young unskilled workers had difficulty finding even entry-level jobs.
These and other studies reaffirm the conventional view among economists — that even moderate increases in the minimum wage push some low-wage workers out of the labor force or at least reduce the hours that employers offer them.
The burden of the minimum wage falls on employers (including minority-owned small businesses), on workers who lose their jobs or have their hours reduced, and on customers who have to pay higher prices. Especially in low-income neighborhoods, owners of restaurants, convenience stores, or service stations are more likely to be lower-middle class than rich. A $15 federal minimum wage will impose a particular burden on small businesses in states such as Mississippi and Louisiana, where the cost of living and average wage rates are much lower than in New York or California.
If the aim is to help low-income workers, many economists view the Earned Income Tax Credit as a superior alternative to a minimum wage increase. The EITC spreads the cost of raising the incomes of low-wage workers across all federal taxpayers. Because the bulk of federal taxes are paid by the top 20% of the income distribution, the EITC is a more economically progressive way of redistributing income. And whereas the minimum wage has a negative employment effect, the EITC has a positive effect because it subsidizes work.
In 2021, for a single worker with two children, the EITC effectively increases the return on each hour worked by about $3. Recent research by Diane Whitmore Schanzenbach and Michael Strain has shown that past increases in the EITC have raised the amount of labor supplied, particularly by less-educated, unmarried mothers.
Finally, as Adam Ozimek has pointed out, in low-income neighborhoods, the minimum wage primarily redistributes money from small business owners to their workers and can raise the prices customers of these small businesses have to pay. In contrast, the EITC injects new money into the neighborhood from the federal treasury.
With his implication that a plurality of economists are “radicals,” Krugman has once again tried to turn a policy debate into a morality play, featuring the enlightened liberals on his side and the supposedly benighted radicals on the other side. This sort of rhetoric is very rich in fallacy and impoverishes the argument surrounding a key issue.
Anthony O’Brien is an emeritus professor of economics at Lehigh University.
