Badger InstituteBadger Institute
  • Home
  • Issues
    • Taxes
    • Education
    • Crime & Justice
    • Spending & Accountability
    • Economy & Infrastructure
    • Federalism
    • Licensing
    • Healthcare
    • Civil Society
  • Mandate for Madison
  • Research
  • Magazines
    • Diggings
    • Wisconsin Interest
  • Events
  • Media
    • Podcast
    • Fact Sheets
    • Viewpoints
    • Press Releases
    • Badger in the News
    • Video
    • Audio
    • Testimony
  • About
    • Our Mission
    • Board of Directors
    • Team
    • Visiting Fellows
    • America’s Future
    • Careers
  • Newsletter
  • Donate
  • Contact Us

Subscribe for Updates

Get the latest news and updates from Badger Institute.

What's New

Latest crime figures show a Milwaukee in trouble

March 23, 2023

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023
Facebook Twitter YouTube LinkedIn Instagram
TRENDING:
  • Latest crime figures show a Milwaukee in trouble
  • Wisconsin lawmakers in the dark on broadband
  • The underfunded part of Wisconsin public schooling
  • If we don’t pay for roads, we don’t get mobility
  • Foreseeing the Future of Wisconsin’s Flat Tax
  • Wisconsin voters will be asked about welfare work requirements
  • A state without convictions
  • Why Wisconsin Needs a Flat Tax and Education Reform
  • Donate
  • Newsletter
  • Contact
Facebook Twitter YouTube LinkedIn Instagram
Badger InstituteBadger Institute
SUPPORT OUR MISSION
  • Issues
    • Taxes
    • Education
    • Crime & Justice
    • Spending & Accountability
    • Economy & Infrastructure
    • Federalism
    • Licensing
    • Healthcare
    • Civil Society
  • Mandate for Madison
  • Research
  • Magazines
    • Diggings
    • Wisconsin Interest
  • Events
  • Media
    • Podcast
    • Fact Sheets
    • Viewpoints
    • Press Releases
    • Badger in the News
    • Video
    • Audio
    • Testimony
  • About
    • Our Mission
    • Board of Directors
    • Team
    • Visiting Fellows
    • America’s Future
    • Careers
Facebook Twitter YouTube LinkedIn
DONATE
Badger InstituteBadger Institute
Home » Media » News » Recognize the costs of increasing minimum wage
Economy and Infastructure

Recognize the costs of increasing minimum wage

By Ike BrannonApril 8, 2015
Share
Facebook Twitter LinkedIn Pinterest

The harder we make it for young people to get on the first rung of the job ladder, the harder it will be to move up.

A productive dialog about poverty in America must recognize the need for transparency about policies aimed at addressing the issue. Milwaukee’s Public Policy Institute seems to do the opposite by appealing to the conclusions of a “sophisticated microeconometric model” when describing how the fiscal reform plan it has concocted will reduce poverty in America by 50%.

To do that would be a gargantuan achievement, almost unprecedented in American history and worthy of support even at a price tag twice as high as the one the institute reports. Unfortunately, its promises exceed reality – or any economic consensus – and skip over details that many economists would disagree with.

For instance, a minimum wage increase would have two contradictory effects on poverty: For those who keep their jobs, it would improve their lot, but some workers at or near the minimum wage would lose their jobs. This represents a fundamental truth about minimum wage: We face a trade-off that pits gains for some against job loss for others.

Trying to figure out why the Public Policy Institute’s model allows it to avoid this trade-off is difficult, and the authors’ analysis seems to dismiss it. They state that the effect is “uncertain” and cite a report by the Urban Institute that looks solely at the minimum wage in Washington, D.C., where wages and labor demand are much higher and economic conditions much better. But that piece doesn’t try to estimate the impact of a higher minimum wage on employment; it merely teases out an implied statistic from a 2014 Congressional Budget Office study that says a 10% increase in the minimum wage would result in a 1% drop in employment.

It’s a reasonable estimate, but research shows that even recognizing this trade-off isn’t enough when considering minimum wage policy; labor markets are vastly different across the country and even across Wisconsin.

Andrew Hanson, a Marquette University associate professor of economics, and I examined each labor market in Wisconsin in a 2014 study for the Wisconsin Policy Research Institute (and elsewhere for all 50 states in The Journal for Labor Research) to look at where low-income workers tend to dominate and estimate the impact of a minimum wage increase across these areas. That allows us to avoid imposing a single metric on a population for which it is not well-suited.

There’s another long-term cost that minimum-wage defenders ignore: The harder we make it for young people to get on the first rung of the job ladder, the harder it will be to move up. What a 17-year-old gets from his 15 hours a week at McDonald’s isn’t just a paycheck but a lesson about showing up on time, dressing up for a job interview, getting along with co-workers and that going to school to improve job prospects is probably a good idea.

This takes us to a more fundamental truth about economics: Beware of studies that are long on outcomes from models and short on explaining what assumptions they make. If someone begins by assuming that the minimum wage scarcely matters to employment, then raising the wage obviously is going to boost incomes and reduce poverty with no downside. It is incumbent on authors of such a study to explain why they choose to brush aside careful empirical studies that estimate job loss from raising the minimum wage by simply stating that the effects are “uncertain” and then assuming that they’re not uncertain but nonexistent.

I agree with some of the solutions proposed by the Public Policy Institute, most notably an expansion of the Earned Income Tax Credit. The political attractiveness to boosting the minimum wage instead of expanding the EITC is that the minimum wage doesn’t cost governments or taxpayers anything, at least in terms of a line item in a budget. But this ignores the larger social costs from displacing some of the very workers it is aimed at helping.

Economic growth also reduces poverty. The recent increase in starting wages by Wal-Mart, the Gap and McDonald’s is not a reflection of some sudden magnanimity by those corporations but a realization that nearly six years of economic growth – albeit somewhat uneven – have helped to erode the pool of the unemployed and now these companies need to compete for workers. Doing more to encourage economic growth – whether it be tax reform, improving schools or boosting investment in infrastructure – would help the poor find and keep jobs.

A discussion that recognizes a mix of policies directly aimed at poverty reduction and those aimed at increasing economic growth should be the starting point for how to solve both Wisconsin and America’s poverty problem.

Ike Brannon, PhD, is president of Capital Policy Analytics in Washington, D.C., and a senior fellow at the George W. Bush Institute. This column represents his personal opinion.

News
Share. Facebook Twitter Pinterest LinkedIn Tumblr Telegram Email
Ike Brannon

Related Posts

Latest crime figures show a Milwaukee in trouble

March 23, 2023

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023
Categories
Top Posts

Local pols filling old budget holes with massive COVID aid

December 8, 20221,452

This is not four years ago

November 10, 20221,287

A state without convictions

January 12, 2023645

Billions in federal spending in Wisconsin unaudited; results never measured

November 9, 2022491
Archives

Sign Up for Top Picks

Our weekly e-Newsletter with the latest items and updates

Connect with Badger Institute
  • Facebook
  • Twitter
  • YouTube
  • LinkedIn
About Us
About Us

The Badger Institute is a nonpartisan, not-for-profit institute established in 1987 working to engage and energize Wisconsinites and others in discussions and timely action on key public policy issues critical to the state’s future, growth and prosperity.

Facebook Twitter Instagram YouTube LinkedIn

Sign Up for Top Picks

Our weekly e-Newsletter with the latest items and updates

What’s New

Latest crime figures show a Milwaukee in trouble

March 23, 2023

Wisconsin lawmakers in the dark on broadband

March 16, 2023

The underfunded part of Wisconsin public schooling

March 16, 2023

If we don’t pay for roads, we don’t get mobility

March 9, 2023
© 2023 Badger Institute | Privacy Policy | Disclaimer | Sitemap

Type above and press Enter to search. Press Esc to cancel.

This site uses functional cookies and external scripts to improve your experience.

Privacy settings

Privacy Settings

This site uses functional cookies and external scripts to improve your experience. Which cookies and scripts are used and how they impact your visit is specified on the left. You may change your settings at any time. Your choices will not impact your visit.

NOTE: These settings will only apply to the browser and device you are currently using.

CRM Software

Customer Relationship Management Software

Google Analytics

Google Analytics is a web analytics service offered by Google that tracks and reports website traffic. Google uses the data collected to track and monitor the use of our Service. This data is shared with other Google services. Google may use the collected data to contextualize and personalize the ads of its own advertising network.

You can opt-out of having made your activity on the Service available to Google Analytics by installing the Google Analytics opt-out browser add-on. The add-on prevents the Google Analytics JavaScript (ga.js, analytics.js, and dc.js) from sharing information with Google Analytics about visits activity.

For more information on the privacy practices of Google, please visit the Google Privacy & Terms web page: https://policies.google.com/privacy?hl=en

Powered by Cookie Information