Recently Jen Doleac (a leading economist in the study of crime and a wonderful person*) came under fire on twitter for saying that if the minimum wage were increased to $15/hr where she lives in Texas, she would hire fewer undergraduate RAs (currently $10/hr) and more pre-docs (people who have graduated college and plan to go to graduate school in the future) at $22/hr, resulting in fewer hires overall. (Note to people who live in Blue Coastal cities– remember that cost of living in the South is a lot lower than where you live. $15/hr seems pretty high to me given how low rents are where I live– $500/mo for a studio, much less if you’re willing to share a multiple bedroom place with others, and you still get your own room.)
What bothers me about this, other than Jen being a stand-up person who cares a LOT about people and genuinely wants to do things that help rather than hurt people**, is that the attacks on her are a knee-jerk reaction to a policy option that we still don’t know for sure will help or hurt people overall, and the mitigation of potential hurts is not being taken seriously because somehow raising the minimum wage is supposed to solve problems and not create new ones. Ignoring potential problems not only doesn’t make them go away, but it prevents us from having comprehensive policy solutions.
The problem with most conservatives is that they want money and power and don’t care who gets hurt (also they have stronger levels of disgust and really hate moral hazard). The problem with many knee-jerk ultra-liberals is that even though they care a lot, they often advocate for things that sound good but actually hurt the populations they’re trying to help. (This is why Public Finance is such an important class for everyone!)
We don’t know if raising the minimum wage helps or hurts, because if minimum wage gets too high, employment will drop. Yes, in our current environment it is probably too low now. Yes, $100/hr is probably too much and will result in more robots and fewer jobs. (Or in the undergraduate RA case– fewer paid RA positions and more unpaid class credit positions.) Is $15/hr the right number? $25? $10? It is really hard to say. There are well over 500 papers examining the effects of the minimum wage.*** We do know that when firms have monopsony power****, employment goes up when the minimum wage is raised a little or in environments that can bear the increase. It seems likely that a minimum wage increase may have short term benefits to employment outcomes, but then decreases employment over the long term (that is, firms don’t fire people, but they don’t hire as much when people leave when the wages are higher). There’s a lot of newer evidence showing heterogeneous effects of minimum wage increases and it helps white dudes most and in some cases hurts black men and sometimes women. So even if it helps on average, there’s a good possibility that large increases in the minimum wage will hurt our most vulnerable.
What does work? Well, the evidence for the EITC is extremely strong. Even researchers and policy makers who were EITC deniers back in the 1990s have come around because the evidence is so strong. (What is EITC? it’s basically a tax program that subsidizes wages for low income people. Sometimes knee-jerk folks think, this is the government subsidizing big companies, and they are not wrong. But are you trying to punish companies or are you trying to help people? What is the end goal? In theory, the EITC could be combined with a stronger corporate tax, but in reality…) So Jen Doleac says, we need to expand the EITC.
But the problem with the EITC (as with increased minimum wages) is that you have to work to get it. There are a lot of people who, for whatever reason, cannot produce enough to make even $7.50/hr. You’ve probably worked with people who actively decrease other people’s productivity (possibly even had a boss like that). Then there are people who are just not capable of regular work. Now, we do have a disability program and TANF and WIC and etc. but this is not a comprehensive social safety net. I fully believe that in a country as rich as the US even people who are not capable of being productive enough for a firm to hire them at minimum wage should be fed and sheltered and clothed and provided healthcare.
So what is better than increasing the minimum wage?
Basic Income. Give everybody enough income that they can live a minimal subsistence lifestyle without working. Yes, there will be moral hazard– lots of people will work less under this system. Even potentially productive people. I don’t care. Some people shouldn’t be working (though because discrimination is real, under our current system that doesn’t necessarily map to the people who aren’t working) and I am ok with this (not ok with discrimination though). As long as the basic income isn’t too high, most people will still want to work at least somewhat because most of us don’t want minimal subsistence lifestyles. Then you can combine basic income with EITC, single payer health insurance, and stronger corporate taxes and there’s no longer even a need for minimum wage or disability or TANF or a whole lot of other expensive red-tape programs. Of course it’s easier to change one program than to change a number at the same time. And it’s likely corporate taxes would be dropped later without changes to basic income or EITC, which could be problematic. We don’t know that much about the effects of basic income because it’s never really been tried on a large scale, but in theory the effects aren’t ambiguous like they are for minimum wage. Productivity will drop but average well-being will improve and children will benefit from the stability. (There’s details… how much should geography be taken into account etc. Subsistence income in Manhattan is very different than say, rural Montana.)
Now, from a political standpoint, you may say that increasing the minimum wage is an easier sell than completely restructuring our welfare system to basic income, and you would be right. Basic income is probably less feasible. Expanding EITC may be more feasible, and may be a better option, but, of course, it does have the problem that it’s the government subsidizing firms that provide low wages.
I hate the way that well-meaning people often label people as terrible because they don’t think about the potential negative consequences of the programs they’re advocating for. When I was living in paradise, I was constantly bombarded with requests to sign petitions in favor of rent control. To help the poor people, they would say. But what happens with rent control? You end up with more condos, fewer rental units, and what rental units there are the landlords become abusive and stop keeping up the residences. (And you end up with current tenants making a mint subletting…) In the end, some people benefit enormously, but generally not the poor people who are likely to need to move from time to time for work. What is a better policy? To remove the rules that buildings can’t be more than 2 or 3 stories and allow high rise apartments to be built. But nobody wants that! It’s really a policy to protect people with safe jobs already living there and to keep outsiders out. There’s simple economic theory behind it, just as there is for minimum wages (same graph, actually, taught in the same section of Micro 101), but there’s also robust empirical evidence that rent control never helps the people it claims to help. Rent control hurts poor people. Allowing more units to be built helps poor people. But “people who care” listen to the NIMBYs with their specious arguments and want rent control, not high-rises.
Some economists are bad people. I cannot disagree that there are some people who choose this field because they really identified with the simplistic assumptions of Econ 101 and then they never took a public finance course because they don’t believe there’s a role for government or that that could be a useful course.
But there are legitimate reasons that economists who do care about things will disagree on the minimum wage and the cut point for the minimum wage. (And a lot of this is going to depend on geography! Housing costs alone vary enormously.) Bringing these potential problems up does not make an economist a bad person. Good economists who are good people want to do things that genuinely help and they do not want to accidentally hurt the people they are trying to help. Good economists care about unintended consequences and they advocate for policies that help the most vulnerable. (Bad economists just care about reducing moral hazard at the expense of total social welfare.)
Don’t just knee-jerk say someone is a bad person because a tweet on a complex issue doesn’t agree with Bernie Sanders. One of my colleagues from Vermont says that nobody ever goes to Bernie for help because even though he talks a good game, he doesn’t actually do anything. Complex issues are complex. There are trade-offs. And you can’t demonize someone for bringing up the trade-offs. Because when you do that, you end up hurting the people you want to help. Republicans have blinders on. Democrats don’t need them too. Evidence-based policy for all!
*I don’t know her very well, but I have seen her present several times. She’s an extrovert and very good with faces and names, so she knows everyone and everyone knows her. I am basing her wonderful personness on the body of her work and her interpretations of said work. She asks important policy questions that show she cares about people and doesn’t start with bigoted assumptions like some economists do. As a caveat, I didn’t much care for her naloxone paper when it came out but I can’t remember why not. I think there were competing papers and I found the other one more convincing, but I’m not sure.
**She has a wonderful Ban the Box paper that shows that it decreases hiring among young black men but increases it among women and older black men… and of course white men. IIRC, she has another paper on how algorithms and machine learning predicting recidivism will be racist if their inputs are racist.
***Many of the people who study minimum wage are jerks to each other. There’s two big camps that have nasty arguments because results are extremely sensitive to specification choices and I recently told my managing editor I did not want any more minimum wage papers as co-editor. People working on minimum wage are mostly white dudes because nobody else wants to get into the fray. But there are a lot of them. Note that because there are over 500 papers, you can find a paper that supports whatever your agenda is! And the top economists disagree with which ones are better quality (and yes, there’s a correlation between their political ideology and whether or not they believe they should include state specific time trends, for example).
****Monopsony power is like monopoly power except the firm is the only purchaser of inputs, for example, it’s the only employer in town.
Disclaimer: I am currently paying undergrads $14/hr which is higher than the university average, new grad students $15/hr (I have to get special permission for this!), and experienced grad students $18/hr (for some reason the top salary allowed for experienced student workers is higher than for starting student workers). I don’t have pre-docs or post-docs.
I imagine this post might spark some discussion, but my Monday only has an hour free between in-person class and zoom meetings, so I might not be able to moderate/respond until late or even Tuesday depending on how exhausted I am and how much attention I have to pay at the meetings.