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The Politics Of Raising The Minimum Wage

Feb 16, 2013
Originally published on February 16, 2013 10:05 am

Transcript

SCOTT SIMON, HOST:

This is WEEKEND EDITION from NPR News. I'm Scott Simon. In his State of the Union address, President Obama called for Congress to raise the minimum wage to $9 an hour, up from its current rate of 7.25.

PRESIDENT BARACK OBAMA: Today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we've put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That's wrong.

SIMON: But does raising the minimum wage help families if it discourages hiring? David Leonhardt is with his. He's the Washington bureau chief of the New York Times. David, thanks for being back with us.

DAVID LEONHARDT: Thanks for having me.

SIMON: What do history and numbers say? Is raising the minimum wage a good way to help low-wage workers?

LEONHARDT: Raising the minimum wage pretty clearly helps low-wage workers. I think sometimes you hear it described as some sort of free lunch and other times you hear it described as an economic calamity, and I don't think it's either of those.

SIMON: Why not?

LEONHARDT: Because what happens when companies have to pay higher wages, the evidence suggests, is that although it may have some modest effect on employment, it doesn't have a big effect on employment. And so what that means is that the companies absorb the higher wages. And they absorb them either through taking a hit to their profit or they raise their prices, which means that essentially it comes out of all of their customers, which is to say the society as a whole. So, you can think of it as moving some income from the middle and the top toward the bottom.

SIMON: Why wouldn't raising the minimum wage hurt small businesses and job growth if they're dependent on minimum-wage employees?

LEONHARDT: It's not that it wouldn't hurt them, but the question is would it hurt society as a whole. When economists have gone and looked at this, the answers are in a pretty clear range, that it doesn't have huge effects on the size of employment. So, for example, they looked at two neighboring states - one of which raised it minimum wage and one of which didn't - and you don't see that because the minimum wage goes up by 10 percent, the employment at businesses that employ low-wage workers go down by 10 percent. It's much smaller than that. In fact, in some cases, it appears to be zero.

SIMON: If the minimum wage is increased and companies in large pass those increased costs onto their consumers by increasing the price by whatever goods or services they're selling, what's that effect on the economy?

LEONHARDT: Well, you can think of that - if that's what happens - you can think of it as potentially being a little bit of a drag initially because you're taking some money out of the pockets of those consumers. But you're putting it right back into the pockets of low-wage workers, and low-wage workers spend a very large percentage of their income - larger than middle-income or upper-income workers. So, if you think about that dynamic, you can see why historically raising the minimum wage has not had some sort of huge macroeconomic effect. It's instead more redistributing wages among different groups. And it's important to say here that low-income workers have done among the worst of any group over the 20 or 30 years.

SIMON: What are some of the political implications of this proposal?

LEONHARDT: Well, I think this proposal's probably unlikely to happen because there is opposition, substantial opposition, from Republicans. But I don't think it's totally out of the question because it tends to poll fairly well. And you could imagine it being included as part of some larger deal. I don't see it passing on its own but maybe as part of a larger deal in which both sides have to make compromises. One of the interesting things is the president didn't just propose raising it; he proposed linking it to inflation the way many other things, like Social Security are, so that over time the minimum wage wouldn't fall absent action by Congress, but it would keep up with the value of goods and services.

SIMON: If you were to peg the minimum wage to the rate of inflation, what are some of the advantages or drawbacks to that?

LEONHARDT: Well, over time, the minimum wage goes up, and I think for a lot of low-wage workers that's a good thing. But I thought there was a good point by Matthew Iglesias on Slate this week. He's generally supportive of raising the minimum wage, but he said that he thinks the best argument against it is a freedom argument. If there's a worker out there who's willing to work for $6 an hour and there's a business that is willing to employ that worker for $6 an hour, maybe there's an argument that other people shouldn't be getting in the way. I don't know if that argument wins out in the end, but if over time you're raising minimum wage with inflation to keep it constant in real terms, as economists say, over time that means there are more people who cannot come to an agreement on their own to work for a wage below the minimum wage.

SIMON: David Leonhardt, Washington bureau chief of the New York Times. He has a new eBook out by the way: "Here's the Deal." David, thanks for being with us.

LEONHARDT: Thank you, Scott. Transcript provided by NPR, Copyright NPR.