There are a lot of diaries that proclaim Hillary Clinton as being immoral for not supporting a national minimum wage of $15/hour. I submit that the evidence actually suggests that she is being responsible, and being very moral. In fact, I would suggest that she is the *only* one being responsible on this topic.
Let us first consider the effect of raising the minimum wage. Roughly speaking, you can expect 3 outcomes (or some combination of the 3)
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Wage increases. This is the obvious part.
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Job losses. Jobs whose “marginal productivity” is below the new wage floor will disappear.
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Inflation. Some of the costs are passed on the customer.
Most economists used to assume that any increase in the minimum wage would result in some of all 3 factors above. If an increase in the minimum wage is expected to result in some job losses, then this is a strong moral argument against raising the minimum wage.
However, there was a seminal piece of work done by Alan Kreuger in the early 1990s that indicated otherwise. In his own words:
When I started studying the minimum wage 25 years ago, like most economists at that time I expected that the wage floor reduced employment for some groups of workers. But research that I and others have conducted convinced me that if the minimum wage is set at a moderate level it does not necessarily reduce employment. While some employers cut jobs in response to a minimum-wage increase, others find that a higher wage floor enables them to fill their vacancies and reduce turnover, which raises employment, even though it eats into their profits. The net effect of all this, as has been found in most studies of the minimum wage over the last quarter-century, is that when it is set at a moderate level, the minimum wage has little or no effect on employment.
With this paper, Alan Kreuger became one of the greatest allies of the minimum wage movement. His work demonstrated that raising the minimum wage in responsible increments is good for everyone because it can be done in way that avoids job losses. He was appointed by President Obama to Chair his Council of Economic Advisors. His thoughts on the topic should be considered as being responsibly thought through, and being firmly rooted on the right side.
So how much is too much ?
Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. One reason for this judgment is that around 140 research projects commissioned by Britain’s independent Low Pay Commission have found that the minimum wage “has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy.” A $12-per-hour minimum wage in the United States phased in over several years would be in the same ballpark as Britain’s minimum wage today.
And is $15/hour too high ?
But $15 an hour is beyond international experience, and could well be counterproductive. Although some high-wage cities and states could probably absorb a $15-an-hour minimum wage with little or no job loss, it is far from clear that the same could be said for every state, city and town in the United States.
More logical is the proposed legislation from Senator Patty Murray, Democrat of Washington, and Robert C. Scott, Democrat of Virginia, calling for raising the federal minimum wage to $12 an hour by 2020. Their bill is co-sponsored by 32 senators, and supported by President Obama and Hillary Clinton. High-wage cities and states could raise their minimums to $15.
Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.
Economics is all about understanding trade-offs and risks. The trade-off is likely to become more severe, and the risk greater, if the minimum wage is set beyond the range studied in past research.
On that note, there was an interesting exchange on Alan Kreuger’s work in one of the debates. From the transcripts:
OBRADOVICH: Senator Sanders, you've actually talked about immigration as being a wage issue in the United States. And I want to actually go directly to the wage issue now.
You called for raising the minimum wage to $15 an hour everywhere in the country. But the President's former chair of the Council of Economic Advisers, Alan Krueger, has said a national increase of $15 could lead to undesirable and unintended consequences of job loss.
What level of job loss would you consider unacceptable?
SANDERS: Kathie, let me say this. 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.
Real inflation accounted for wages has declined precipitously over the years. So I believe that, in fact, this country needs to move towards a living wage. It is not a radical idea to say that if somebody works 40 hours a week, that person should not be living in poverty. It is not a radical idea to say that a single mom should be earning enough money to take care of her kids. So I believe that over the next few years, not tomorrow, but over the next few years, we have got to move the minimum wage to a living wage, 15 bucks an hour. And I apologize to nobody for that.
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CLINTON: But 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. And the overall message is that it doesn't result in job loss. However, what Alan Krueger said in the piece you're referring to is that if we went to $15, there are no international comparisons.
That is why I support a $12 national federal minimum wage. That is what the Democrats in the Senate have put forward as a proposal. But I do believe that is a minimum. And places like Seattle, like Los Angeles, like New York City, they can go higher. It's what happened in Governor O'Malley's state. There was a minimum wage at the state level, and some places went higher. I think that is...
O'MALLEY: Didn't just happen.
CLINTON: I think that is the smartest way to be able to move forward because if you go to $12 it would be the highest historical average we've ever had.
O'MALLEY: Come on now. Yeah, but look. It should always be going up. Again, with all do respect to Secretary Clinton...
CLINTON: But you would index it -- you would index it to the median wage. Of course, you would. Do the $12 and you would index it. But I...
O'MALLEY: I think we need to stop taking our advice from economists on Wall Street...
CLINTON: He's not wall street.
O'MALLEY: ... And start taking advice...
CLINTON: That's not fair. He's a progressive economist.
Now, Alan Kreuger is an expert on this topic. That does not necessarily mean he is right ~ you are free to disagree with his recommendations. But if you do, you should explain why. It is irresponsible to proclaim that anything less than $15/hour is immoral without explaining why you think it will not result in massive job losses.
And so I take what Alan Kreuger said very seriously as well. And I admire Secy Clinton for standing up for Alan Kreuger. I was disappointed that Gov OMalley slammed him as being “wall street”, and that Sen Sanders did not correct him. I was also disappointed that Sen. Sanders passed on the opportunity to describes the tradeoffs of raising the minimum wage to $15/hr ~ I am positive he knows of Alan Kreuger’s work. I was disappointed that only Secy. Clinton was being responsible on this topic.