A really great summary of the economists point of view on minimum wage debate is summarized here. The minimum wage theory is simple, if it is accurate is another question. If wages have to artificially go up then there are fewer jobs, since companies want to hire fewer workers at any given wage. For example if the Majestic movie theater makes $7 an hour for one additional employees before wages then it hires the employee at $6 an hour, but not if the minimum wage is $7.25.
A ground breaking study by Card and Krueger showed that when New Jersey raised its minimum wage that employment did not fall compared to its neighbor Pennsylvania that didn't raise the wage. The paper has been criticized for how it collected its data and the debate in labor economics continues.
In theory I would think a wage subsidy (where the government basically pays part of the wage) would probably achieve the best results, but I'm still not sure.
It is also important to note that most minimum wage workers are young and many are teenagers.
1 comment:
Interesting post. One other point to add is that only about a fifth of those making the minimum wage are in poverty and only another fifth close to it. Many people at or close to the minimum wage are the children of middle and upper class parents. Raising the minimum wage to fight poverty is a rather blunt tool.
In terms of wage subsidies, the Earned Income Tax Credit really is one of the largest transfer payment programs to low wage workers. Depending on their wage, the feds give the worker 40 cents for every dollar earned. One problem, though, is the phase out can result in rather high marginal (implicit) tax rates.
Hasta pronto.
Dad/Bob Gitter
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