Minimum Wage Hike: Help or Harm?

Greg Mankiw points out that the President’s recent remarks about economics research into the impact of increasing minimum wage were somewhat misleading. The President said “there’s no solid evidence that a higher minimum wage costs jobs.” That makes it sound as though the concern is a mere ideological fabrication. In reality, however, it’s a hotly contested question even among economists and Mankiw pointed out a poll (of economists) that showed equal support from those who think that minimum wages help vs. hurt.

My own take is that minimum wages hurt, overall. I think the reason that this isn’t more obvious is that the effects take place over a long period of time. McDonald’s isn’t going to go out and fire all of the workers tomorrow because of a minimum wage hike because they’d have to replace them with computers and that’s an enormous, unplanned expenditure. But if McDonald’s believes minimum wages hikes are here to stay (e.g. if they are pegged to inflation as the President supposes), then they absolutely will gradually phase workers out and replace them with automated systems over time.

This isn’t just a pet theory I invented, the idea came from economist Miles Kimball blogging about Isaac Sorkin’s work. (Sorkin was in my PhD cohort at Michigan.) In the paper, Sorkin argues that we haven’t seen dramatic impacts from minimum wage policies in the US because they’ve always been temporary. President Obama’s proposal isn’t. So there’s very solid theoretical evidence and much less clear empirical evidence to suspect that the policy is going to be harmful for precisely the people it’s supposed to benefit.

At a minimum, folks should understand that when conservatives oppose minimum wage policies on humanitarian grounds, they are being sincere and reasonable.