In January 2014, President Obama called in his State of the Union address for a raise of the minimum wage to $10.10. The year before, he proposed for a raise to $9. Fiscal conservatives say raising the minimum wage is a “job-killler”, while labor unions and liberal Democrats are all for it. However, it is true the possible effects are not so black and white.
If you ask Arine Dube, a UMass Amherst economist, there is no adverse effect on employment; if you ask David Neumark, a University of California Irvine economist, there is. However, there is one thing researchers and economists can agree on: raising the minimum wage would reduce poverty.
A nonpartisan Congressional Budget Office released a report in February stating that raising the minimum wage would lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week. However, it could reduce total employment by 500,000 workers by the second half of 2016.
The words to focus on in the mixed report are “would” and “could.” Raising the minimum wage “could” be at the cost of about 500,000 workers. However, when the report was discussed among The White House’s Council of Economic Advisors, they cautioned that job losses were likely to fluctuate, even lower, from zero, to one million. Raising the minimum wage would help Americans that are living paycheck by paycheck.
When it comes to reducing poverty, raising the minimum wage is the solution for 2.5% of those currently living in poverty; in the medium-run, at least. And low-wage workers tend to spend their extra earnings, since they are already living on such a tight budget, putting more money back into the economy.
It would also boost the incomes, by $1700, of those at the 10th percentile, while not requiring the government to tax or spend an additional dollar. The policy is self-enforcing,and challenges the employer’s market power.
Since James Tobin argued in 1996 “Minimum wage always had to be recognized as having good income consequences…. I thought in this instance those advantages outweighed the small loss of jobs,” the debate on whether the means is worth the ends in raising the minimum wage to end poverty at the cost of jobs has ensued.
Whether liberal or conservative, the question that Congress and the American people have to weigh out, is whether the cost of jobs is worth the fight to combat poverty. Raising the minimum wage is a plausible solution to ending poverty, but it is also just one factor out of many.
Dealing with underemployed Americans doesn’t have a black or white answer. Whether we raise it or not, it does have a lot of gray. And it’s just as close-minded to say that raising the minimum wage is against a free economy and kills jobs and causes inflation, as it is to consider it a long-term solution to poverty.