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Raising the Minimum Wage Is Good Economic Policy

My latest US News & World Report blog post discusses the economic impact of President Obama’s proposal to raise the minimum wage.  It starts by highlighting that a majority of the panel of about 40 economic experts surveyed by the University of Chicago’s Booth School of Business agreed with the following statement:

‘The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.’…

The post explains why you can agree with that statement using just Econ 101 reasoning:

You don't have to abandon basic principles of supply and demand in a competitive labor market to conclude that low-wage workers as a group could benefit from a minimum wage increase.  If the employment effect is ‘noticeable’ but relatively small compared with the size of the wage increase, aggregate wages among minimum wage workers would still rise.

But, more importantly, it discusses why recent minimum wage research suggests that in real-world, low-wage labor markets, there may be no adverse impact on employment, or just a very modest one.  I cite, in particular, this interview with Arindrajit Dube, a leading minimum wage researcher, and this analysis from John Schmitt, an economist at the Center for Economic and Policy Research.

Contrary to the view that the Earned Income Tax Cut is a better way to help low-income workers than the minimum wage, I reiterate the “twin pillars” argument faithful readers have already seen on this blog and link to some supportive academic research:

In fact, the Earned Income Tax Credit and the minimum wage are better viewed as complementary policies than as substitutes.

My bottom line on the President’s minimum wage proposal:  like the majority of the Booth panel, I think it’s a desirable policy.

Click here to read the full post.