Yesterday, the New York Times editorial board called on Hillary Clinton to leave the realm of economic reality behind and join the ranks of those seeking to drastically increase the minimum wage to $15. The timing of this latest exhortation would almost be amusing, if it weren’t so disconcerting. It came the same day that four former Democratic chairs of the Council of Economic Advisers sent an open letter to her rival for the Democratic nomination Bernie Sanders citing concerns that some of the claims of his campaign “cannot be supported by the economic evidence.” The editorial board engages in its own bout of economic fantasy with the claim that “economic obstacles are not standing in the way” of more than doubling the minimum wage. Even Alan Krueger, author of one of the major studies finding negligible disemployment effects from a past minimum wage increase, took to the pages of the New York Times to oppose a $15 minimum because it is “beyond international experience, and could well be counterproductive.”
In order to make their support for a $15 minimum seem more reasonable, the board alludes to a understanding among proponents of a higher minimum wage that a robust one equals half the average wage. These proposals generally use the median hourly wage, not the higher mean the board references, and getting to that ratio with a $15 minimum wage in 2022 would require wage growth higher than 5 percent, levels not seen in well over a decade. So it’s not only the Sanders campaign engaging in fanciful economic assumptions, and the NYT editorial board is right there with them. More reasonable wage growth assumptions would place a fully phased-in $15 minimum wage around the highest levels seen in the developed world. beyond the frontier of the existing economic literature. Such a move would make major negative unintended consequences near certain.
Even this could understate the problems with a federal $15 minimum wage, as some states and jurisdictions would be even less able to absorb the effects of such a radical increase. The editorial board asserts that the minimum wage needs to be increased at the federal level because some states have not raised it on their own. The piece fails to give any consideration to how less affluent parts of the country will fare under the proposed increase. In Puerto Rico, for instance, the current federal minimum wage is already 77 percent of the median hourly wage (France, for comparison is around 61 percent). While there are certainly other factors contributing to the crisis on Puerto Rico, the high minimum wag is a contributing factor, and doubling it would have disastrous consequences for the roughly 3.6 million people living there. The same dynamic to a lesser extent would hold for less affluent states like Alabama or Arkansas, especially in non-metro areas, where this increase would lead to a higher ratio relative to the median hourly wage than almost anywhere else in the developed world. This could have a devastating impact on state and local economies in these places, and exacerbate the serious problems with poverty and limited opportunity those places already grapple with.
These concerns aside, the minimum wage is an incredibly ineffective way to try to alleviate poverty, and would probably further limit the opportunities for affected workers. Few of the benefits of a higher minimum wage would accrue to families in poverty: with a $15 minimum wage, only 12 percent of the benefits would go to poor families, while 38 percent would go to families at least three times above the poverty line. Even worse, while some studies have indeed found past minimum wage increases had a limited impact on employment, others focusing on targeted workers (younger workers with lower skills) have found significant disemployment effects and reduced economic mobility for this group. Minimum wage increases are poorly targeted to reduce poverty, and could actually be counterproductive for the very people they are supposed to help.
The NYT editorial board’s call for Hillary to embrace the $15 minimum wage elevates intentions above outcomes, leaving behind valid questions about trade-offs for the realm of economic fantasy. Their piece ignores the concerns that an increase of that magnitude could have severe unintended consequences that could exacerbate many of the problems they would want it to address. Perhaps they should have perused their own archives, as the same editorial board said years ago, “[t]he idea of using a minimum wage to overcome poverty is old, honorable - and fundamentally flawed.”