Steven Greenhouse interviews a few economists:
Many economists, especially conservative ones, insist that raising the minimum wage would not reduce poverty, saying it would ultimately reduce the number of jobs for low-skilled workers. But other economists, especially liberal ones, say a higher minimum would have virtually no effect on job levels while it lifted the pay for millions of low-wage workers. “The increase will make a big difference for someone who makes the minimum wage – you’re talking about thousands of dollars a year in extra earnings,” said Jared Bernstein of the Economic Policy Institute, a liberal research group, and one of the economists scheduled to testify before the Finance Committee. “It’s important to remember that if you don’t have a binding wage floor, a lot of workers are going to end up disconnected from the improving economy and that’s exactly what’s happened.” Mr. Bernstein’s institute estimates that six million workers earn less than $7.25 an hour, but workers earning a dollar or two more than that can also expect to see their wages increase if a new minimum is enacted. joseph Sabia, a professor of consumer economics at the University of Georgia, said an increase would do little to lift workers out of poverty. “Most people who earn the minimum wage are not poor or near poor,” Professor Sabia said. “If the goal is to help the working poor, it would be better to raise the earned-income tax credit,” which refunds cash to poor workers.
The traditional economists’ view has been that a higher minimum wage would mean some job losses for low-wage workers. But a landmark 1994 study by David Card and Alan Krueger upset the common wisdom by finding that there were no overall job losses when New Jersey raised its minimum wage. David Neumark, a longtime critic of that study and an economics professor at the University of California, Irvine, said most credible studies had concluded that an increase in the minimum wage did hurt employment for unskilled workers, although most studies did not find major job reductions. He said an increase to $7.25 might reduce job levels for the least skilled workers by 4 percent.
I’ve been listening to several conservative politicians claim that this 40% increase in the minimum wage would lead to substantial job losses, but it seems David Neumark is suggesting that the employment effects would be only a 4% reduction in the demand for low skill workers. Advanced calculus suggests that the elasticity of demand is a mere 0.1, which suggests that overall worker pay would rise as noted by Dean Baker:
Okay, it’s fun with numbers time. The minimum wage hike to $7.25 an hour will increase the wage for the those at the very bottom by 40.8 percent. Mr. Neumark believes that it will result in a 4 percent decline in employment, according to the article. That means that these least skilled workers will on average end up with 35.1 percent higher wages after the minimum wage hike than they do now (0.96*140.8 percent). That sounds like a pretty good deal for those at the bottom.