Bernie Sanders flubbed during Saturday night's CBS debate when addressing the Fight for $15, the nationwide movement to boost minimum the wage.
When questioning him about the minimum wage, moderator Kathie Obradovich quoted Alan Krueger, former chair of the Council of Economic Advisors, that an increase to $15 an hour could lead to “undesirable and unintended” job loss.
“Kathie, let me say this,” Sanders replied. “You know, no public policy doesn’t have, in some cases, negative consequences. But at the end of the day, what you have right now are millions of Americans working two or three jobs, because their wages that they are earning are just too low.”
So who is Alan Krueger, and do minimum wage increases really cost people their jobs?
The data are, unsurprisingly, mixed.
It’s an article of faith among Conservatives that higher minimum wages destroy employment by driving up the cost of labor. Republican candidate Ben Carson made this argument during the last Republican debate, claiming that “every time we raise the minimum wage, the number of jobless people increases.”
Liberals argue the opposite, that minimum wage laws actually increase employment by putting money into the pockets of consumers who generate new jobs through their spending.
Until not all that long ago, economists had little more than theory to rely on, until in 1994 Princeton professor Krueger and David Card of Berkeley published their seminal work “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania.” The study compared employment at fast food restaurants along the New Jersey/Pennsylvania border after the former had raised its local minimum wage laws. It found, if anything, a slight trend toward more job growth in the New Jersey restaurants.
Does this mean that the Democrats can drop the mic and go home? Not so fast…
The problem with studying the impact of minimum wage changes is that the issue has become inextricably bound up with politics, so finding a study that wasn’t released by agenda-driven think tanks is tough. What’s out there is kind of scattered. As the Department of Labor reports, a letter signed by more than 600 economists nationwide reflected their consensus that “increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers.”
Which seems conclusive, until you read the Congressional Budget Office’s 2014 report that a $10.10 minimum wage could reduce national employment by up to 500,000 workers against increased earnings for 16.5 million.
And while the Krueger/Card report found no employment losses when New Jersey raised the state minimum, they also were testing a specific region with a relatively minor increase compared to the $15 per hour proposed by Sanders and the Fight for $15. It’s a distinction that Krueger himself has pointed out, arguing that such a large jump in the minimum wage might very well prove disruptive to the job market.
The movement for a higher minimum wage should consider this carefully, especially since this law applies to small stores and Walmart alike.
The national minimum wage is a blunt instrument. Costs of living vary enormously nationwide, and the urban-focused Fight for $15 movement probably wouldn’t make much sense in Michigan’s Upper Peninsula, where $15 an hour has a lot more purchasing power… and costs a lot more for a business to pay. A far better solution is local regulation by state, or for municipalities to pick up the ball.
Except, of course, that they often don’t. Of the states that have minimum wage laws at all, only 29 improve upon the federal. Most of the rest use the national rate, though five states in the southeast have no minimum at all and Wyoming and Georgia actually set their rate lower than that of Washington’s. (In the last two cases, the federal minimum wage applies.)
Progressives also have a powerful counterargument in that labor isn’t like any other kind of fungible good. Businesses need a certain amount of employment to operate, and they relatively rarely hire more people than they need. To accept that a local McDonald’s would cut shifts in response to having to pay a few more dollars per hour, we would have to accept that the restaurant was overstaffed in the first place. Few businesses operate with that kind of fat on the books.
For the difference between $7.25 and $10 per hour this argument holds a lot of water. It’s unlikely that $14 extra in expenses per person per day would make the difference for a business that wasn’t already in trouble.
A jump to $15 an hour, on the other hand, could mean over $15,000 in extra costs for a business per full time worker per year. For a staff of five employees at a local diner, it’s not hard to imagine that $77,000 being enough to make the difference between survival and plywood. Maybe not in Manhattan or downtown Chicago, where prices are higher and that’s just a cost of doing business, but what about Arkansas or Texas?
Done right a minimum wage can help to balance the disproportionate bargaining power held by employers and can benefit everyone by putting more money into the hands of consumers most likely to spend it. Gone too far, a minimum wage can depress hiring and even push some businesses from the margin over the edge. So, Candidate Sanders, do minimum wage increases kill jobs?
On this one Hillary Clinton got it right. They usually don’t, but be careful.