Will a Higher Minimum Wage Cost Jobs?

Bob Pollin on the theory that a higher minimum wage will reduce jobs available to young people entering the work force and won’t reduce poverty.

Bio

Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.

Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And welcome to this edition of The PERI Report with Bob Pollin, who now joins us from Amherst.

Bob’s the cofounder and codirector of the PERI institute in Amherst. His latest book is Back to Full Employment.

Thanks for joining us again, Bob.

PROF. ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thanks very much, Paul, for having me.

Jay: So, actually, I want to ask you a question. We received just a little while ago an email from Cornell University. Professor Richard Burkhauser has commented on President Obama’s call to raise the minimum wage to $9 an hour. And here’s what Burkhauser had to say:

President Obama’s call for an increase in the minimum wage to reduce poverty flies in the face of 30 years of evidence from Card and Krueger to Newmark and Washer that increases in the minimum wage have no effect on poverty rates.

Bob, the argument that Burkhauser gives is that most people working at minimum-wage jobs are not heads of families, they’re younger people in families that already have income earners, and that if you raise the minimum wage, it’s going to reduce the number of jobs available for young people who are mostly in these minimum-wage jobs and really do nothing about poverty levels, because the main bread-earners are already earning more than the minimum wage, he argues. He says that’s the evidence for 30 years. What do you make of that?

Pollin: Well, that’s not the evidence that I’m familiar with. The evidence that I’m familiar with, having studied living-wage proposals, minimum-wage proposals around the country at state levels, at municipal levels, and national levels, the evidence is the overwhelming majority of people who are at or near minimum-wage levels of wages are not teenagers—let’s put it that way. They’re—the median age is roughly in the 30s. Most of the people have been at their job or at similar jobs for over a decade. They are on their long-term employment trajectory; they’re not about to jump up to some middle-income job as soon as they get out of college.

That doesn’t mean that there aren’t teenagers. The number of teenagers in the labor force are disproportionately at or near minimum-wage jobs. But the majority of people at or near minimum wages are not teenagers.

Now, there is another point. There are many cases in which teenagers or young people who are working at or near minimum-wage jobs are part of families that are above the poverty line, and some of my own research has shown that in fact the contribution of the teenager is what significantly helps to bring the family above the poverty line. So it is not just this image of middle-class teenagers taking jobs at McDonald’s in order that they can go and buy the latest iPad. There’s some of that, but disproportionately the majority are people that are making a significant contribution to keeping their families above water in terms of surviving in a very, very rough economy.

Jay: Well, we’re going to invite Dr. (I’m assuming it’s Dr.) Burkhauser to come on and have a debate with Bob about all of this.

But let me ask you another question about this $9 minimum-wage proposal by President Obama. The studies I’ve seen, in terms of doing—as I do these interviews, seem to suggest that if a minimum-wage earner is the head of a family, $9 an hour does not do what President Obama said it would do, which is raise a family out of poverty. It seems to me the minimum wage to do that would be something more like $14, $15 an hour. In some places it could be as high as $17 or $18.

Pollin: That’s certainly consistent with all the research that I myself have done with my colleagues here at PERI.

Look, the minimum wage in this country in 1968 was close to $11 an hour after we adjust for inflation. That means that any 16-year-old—by the way, middle-class/poor 16-year-olds showing up for a job at McDonald’s in Texas somewhere in 1968 had to get paid close to $11 an hour.

Now, on top of that, average productivity, the amount the average worker produces over the course of a day, has more than doubled since that time, more than doubled. So if the minimum wage were simply to keep up with the average level of labor productivity in this country, we’re talking at something around a $20 minimum wage.

Jay: But hang on for one sec. That increase in productivity, does that exist also in the service industry, where so much of this minimum-wage job are?

Pollin: This is average labor productivity, and 65, 70 percent of the economy is services, so yes. Now, there are issues in how you measure productivity in services, but the point is the overall pie in this economy has grown a whole lot since the late 1960s, early ’70s, when the minimum wage peaked.

So what we have now is a $7.25 national minimum wage. It’s higher in some states. But it is not close to being decent to keep a family above the poverty line if the head of household is earning it. Even if the second earner in the family is earning a minimum-wage job and someone else is earning somewhat above that, that still doesn’t keep a family above what I would call a basic living standard—not what I would call.

By the way, the U.S. Census department has now created other categories in addition to the, you know, badly inadequate poverty line as a measure of economic distress. So if we want to take a more reasonable measure of what it takes to live a minimally decent life, family life in this country, the poverty line isn’t any good to begin with. Something closer to double the poverty line is more reasonable.

Jay: And what do you make of the argument Burkhauser and, of course, many other people make that especially smaller businesses, which I would guess is where a lot of the minimum-wage workers are working, unless it’s a big chain, service, restaurant, or something like that, but at any rate, that they can’t afford, given the market as it is, to have, you know, as many workers as they would now at $14, $15, $17 an hour? In other words, if that were to be instituted, they would have to get rid of some people.

Pollin: Well, I mean, of course you have to increase the minimum wage in increments. If you go today from $7.25 to $17 an hour, of course it’s going to create a lot of disruptions. So we have to move from where we are today, $7.25, incrementally up to where a decent wage would be.

And the main thing holding back job creation, of course, is the Great Recession and what’s happened ever since. It is not the minimum wage. We know over and over again—he cites studies that have gone on for 30 years. It so happens those studies find that minimum-wage increases that are incremental do not cause any significant employment effects, negative employment effects, if any at all. That’s the net result of 30 years of research. There’s really no denying that.

And if you want to create jobs for small businesses, well, then, where you really need to start is to get credit back to small businesses. Small businesses essentially—in the aggregate, small businesses have not got net increases in borrowing basically since 2007. Now, that’s six years now that they basically have been credit-starved. So that’s the way—if you really care about creating opportunities within small businesses, we would focus on getting credit to small businesses.

Jay: So, as I said, we’re going to invite Professor Burkhauser to come on and debate Bob Pollin about the minimum-wage laws, and I hope he will.

Thanks for joining us again, Bob.

Pollin: Thank you very much for having me, Paul.

Jay: And thank you for joining us on The Real News Network.