Washington Post: 4 Things to Know About President Obama’s Proposed Minimum Wage Increase

by Colonel on February 14, 2013

1) Economists are sharply divided about whether the minimum wage increases unemployment

A debate on this topic within the economics profession was kicked off by work done by Berkeley’s David Card and Princeton’s Alan Krueger. Card and Krueger studied employment changes following minimum-wage increases, notably a 1992 increase in New Jersey and a 1988 increase in California, and found no evidence that they caused a fall in employment, if you compare trends to areas that did not see increases.

more recent study from economists at the London School of Economics and the central bank of Turkey found higher minimum wages increased unemployment. But that finding is far from unanimous, with Berkeley’s Laura Giuliano finding no statistically significant effects on employment, and Arindrajit Dube of the University of Massachusetts finding no effects as well. So, if you believe one set of literature, Obama’s plan will increase wages without reducing employment. But many labor economists think the plan has real costs.

2) It’s less cost-effective than just giving poor people money

According to a 2007 study by the CBO, an increase in the minimum wage to $7.25, like that eventually passed that year, would increase wages by $11 billion, of which $1.6 billion went to poor families.

By contrast, increasing the Earned Income Tax Credit for large families (as happened in the stimulus bill) and for single people would cost $2.4 billion, of which $1.4 billion would go to poor families.

3) $9 an hour is higher than any state except Washington

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4) The minimum wage is much lower than it used to be

Copyright 2013 Department of Labor

” — Dylan Matthews, Copyright 2013 The Washington Post Company

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