- Q1 GDP Growth Jumps 1.1% on Strong Personal Consumption
- A Strong March Leads to a Surge in Chinese GDP in Q1 2023
- Durable Goods Retail Sales Suffer from High Interest Rates and Wary Consumers
- Choppy GDP Means UK Should Avoid Q1 Recession
- Japanese Consumer Confidence Jumps to Highest Level in Over a Year
- The End of Summer Sees the End of Disinflation in Europe
- Labor Market Indicators are Starting to Unify on Easing in Hiring
- Inflation and Tight Financial Conditions Weigh on the German Consumer
- Euro Area Money Supply Contracts for the First Time Since 2010
- Dismal Economic Data Out of Germany
- Core Durable Goods New Orders See Gentle Uptrend in July
- More UK Data Pointing to Q3 Decline
- Whispers of a UK Contraction in Q3
- Japan's Core Inflation Resumes Uptrend in July
- Early July Economic Data Leads to a Sharp Increase in Q3 Growth Expectations
- UK CPI: Energy Inflation Crashes but Services Inflation is Still Sticky
- China's Weak Start to Q3 Means More PBoC Easing
- A Breather for the Eurozone as Inflation Hits Two-Year Low
- Germany's September CPI Report: A Clearer Picture of Inflation Trends
- US Manufacturing Demonstrates Resilience Amidst Volatility in August
- The ECB Prepares to Address Excess Liquidity Through the MRR
- Bank of Japan is Too Optimistic on Inflation
- The Bank of England Pauses in a Near Split Decision
- UK Inflation August Update: A Precursor to the Bank of England's Announcement
- Housing Starts Tumble in August Amid Rising Mortgage Rates
- US Retail Sales Grow at Fastest Monthly Rate Since the Start of the Year
- US Consumer Prices Surge in August Driven by Energy Costs
- August NFIB Survey Showed a Tough Environment for Small Businesses
- All Signs Point to a Weaker Labor Market in August
- Chinese CPI Trying to Buck the Deflation Trend
- Energy Prices Rise but the Core Disinflationary Trend is Maintained in September
- PPI's Quiet Rise and the Energy Elephant in the Room
- Small Businesses Grapple with Inflation and Financial Strain in September
- A Wacky September Jobs Report Shows Strong Labor Market
- A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report
- Thoughts on GME and This Week in the Stock Market
- Record Home Price Levels Point to Strength in Post-Pandemic Economy
- The Stock Market Looks Overvalued, but It's Probably Not
- China GDP Growth Surpasses Expectations
- President-elect Joe Biden Introduces His "American Rescue Plan"
- Political Polarization Intensifies with Another Impeachment Along Party Lines
- Metal Demand Has a Bright Future in 2021 and Beyond
- What Happened to That US-China Trade Dispute?
- Civil Unrest, A Rising Threat to the 2021 Economy
- What's in the $900 Billion Relief Plan?
Minimum Wage Research in the Spotlight as a Hike Looks Inevitable
February 04, 2021
President Joe Biden's term is entering its third term, and his administration and the Democratic majority in Congress have been hard at work introducing new policies to combat COVID-19 and improve the economy. One of these policies has been hotly debated and seemed unlikely to see the light of day before President Biden took charge, the $15 federal minimum wage. The policy has been introduced in the House bill named "The Raise the Wage Act of 2021." The bill would do the following:
- Raise the federal minimum wage to $15 by 2025
- Index future increases to median wage growth.
- Guarantee tipped workers receive the minimum wage.
- Guarantee teen workers receive the minimum wage.
- End subminimum wages for workers with disabilities.
This policy always inspires debate and a library of economic research that weighs the costs and benefits of deploying the wage floor, and this time is no different. The main arguments are classic. Raising the minimum wage will lift people out of poverty who have experienced wage stagnation in an inflationary environment. The classic counter is that rising business costs will force businesses who can't pay those wages to cut jobs. Economic research addresses both of these concerns while also addressing other externalities, and the resulting reports are always interesting. Here are some publications that have come out recently as the minimum wage is reintroduced in Congress.
The Economic Policy Institute conducted an analysis that estimated the impact of the federal minimum wage hike on annual government expenditures. They found that "annual government expenditures on major public assistance programs would fall by between $13.4 billion and $31.0 billion" with reductions seen in the use of the earned income tax credit (EITC), the child tax credit (CTC), and food stamps (SNAP). The increase would also increase contributions to federal insurance (FICA). The basis of these conclusions that rising income at the lowest level would allow many households to avoid using the above government programs. This expands on a paper by Dube that estimates every $1 gain in family income results in a $0.34 reduction in public benefits use.
Another paper from the Winter 2021 version of the Journal of Economic Perspectives attempts to quantify the effect on employment that is so often discussed. The authors focus on a sensitive cohort in this discussion, teen workers, who would be the most likely to be laid off because of a minimum wage hike. However, the effects of that would be minimal because of the declining share of teen workers in the labor market. The report points out that only 2.0% of all hours worked in 2019 were by teenagers aged 16 to 19, down from 4.2% in 1990 and 10.7% in 1979. Therefore, it concludes that the employment effect is ambiguous and not robust from models that analyze teen workers.
Another research brief from the UC Berkeley Labor Center looked at the savings on public safety net papers, similar to the Economic Policy Institute. Their analysis is based on data that suggests just under half (47%) of the workers that would benefit from the minimum wage increase have at least one family member enrolled in a safety net program. The total cost of these enrollments to federal and state governments is somewhere around $107 billion a year. Theoretically, the government would save this money after the hike, but the authors do not make this direct claim.
The esteemed National Bureau of Economic Research (NBER) released its own meta-analysis of minimum wage research last month. Some observations include:
- A large number of negative employment effect estimates.
- Stronger evidence in papers looking at teens, young adults, and the less-educated.
- Studies looking at affected workers show even more negative results.
- Studies of low-wage industries aren't as one-sided.
In particular, the NBER finds that the probability of observing the number of negative employment effect estimates in the papers it looks at is very small suggesting the conclusion that there are no adverse effects from a minimum wage increase as probably incorrect. The extent of the likely adverse effect is ambiguous with the median and average elasticity estimates from the papers at -0.12 and -0.15, a slight negative.
One interesting externality that was researched was infant mortality. Research from the Center for Aging and Policy Studies and the Lerner Center for Public Health Promotion. The logic follows that the minimum wage increases would lead to greater wealth which is already known to lead to increases in general health outcomes. This includes "teenage pregnancy, maternal smoking, obesity, and adverse birth outcomes" which all contribute to infant mortality. In short, the conclusion was that a $15 minimum wage would save the lives of an estimated 1,400 infants with an annual savings of $13.4 billion.
These reports are just a few of the more recent publications on the topic of the $15 minimum wage. They present different arguments and models with various conclusions of the cost-benefit analysis that is constantly debated. With a Democratic Congress and a Biden administration, the US might finally see how these modes play out in reality. All we can do is wait and see.