Minimum wage


My favorite thing about my new commute scenario, in addition to the gas savings, is that I have a daily hour of book reading time on the bus. I finally got around to reading The Spirit Level: Why Greater Equality Makes Societies Stronger. I ordered it a long time ago but it never got to the head of the line because course prep, grading, and project-specific reading came first. But then, the bus!

The Spirit Level is a book about how inequality negatively affects everyone within a society, particularly from the perspective of public health. Life expectancy, morbidity rates, homicide, mental health, teenage pregnancy, crime – and even softer measures like levels of social trust — all trend in worse directions in concert with national or state levels of inequality. The authors present all of these trends together and demonstrate pretty effectively that once a society gets to a certain level of economic development, getting richer doesn’t actually appear to improve these central components that really describe quality of life. Rather, economic growth that increases inequality can create a social environment that’s worse for everyone — including the well-off.

It’s a great book without necessarily always being a good book. It provides too little information about the correlations between inequality and the quality of life variables and too much evolutionary psychology at the end, even after the authors themselves point out that the specific causes of inequality are idiosyncratic and ultimately beside the point. Nonetheless, the assertion that we should think about all of our individual social issues as manifestations of the single overarching problem is very powerful, especially when explored as a series of example variables. If you were moved by Robert Reich’s Inequality for All, you will love this book – it provides a more data-focused, less narrative-driven account of the same problem. (And if you’re intrigued but lack the luxury of a half-hour bus ride to work, here’s the TED talk.)

OK, so far this post is not at all about the title line I typed in when I began to write. However, it is, in fact, a serious reason why we should all get much more interested in the minimum wage for entirely self-interested, non-altruistic reasons.

Namely, a higher minimum wage means that less of our tax dollar will be needed to support the working poor.

The recent public conversation about the minimum wage keeps getting pulled into an eddy about whether a minimum wage increase would reduce the number of people – particularly young people – hired by companies who hire a lot of minimum-wage workers. Depending on your level of interest in the specifications of economic models,  you can dig into a number of arguments that both support and oppose the hypothesis. It appears not to create massive change one way or the other.

However, what is noncontroversial at this point is that raising the minimum wage does decrease poverty. And when poverty levels are decreased, fewer people need state support.

When he was running for governor, Paul LePage described one of the employees he supervised at Marden’s as his welfare “poster child” because she rejected a $2 raise rather than lose eligibility for MaineCare to cover herself and her children. (Feel free to pause for a moment to reflect on the irony of Paul LePage being concerned about someone maintaining her MaineCare eligibility.) The reason that this was an issue at all, of course, was that this woman spent all of her time in very low-wage employment. When we fail to require a reasonable minimum wage, we get people working – and yet we still collectively need to support them in order for them to have the basics of food and health care. As many have pointed out, we collectively subsidize companies that pay low wages through offering state assistance to their employees. A low minimum wage may possibly mean more people working but in jobs where they are likely to require continuing public assistance.

And what kind of benefits do states which choose lower minimum wages get? In theory, if a low minimum wage is so effective at increasing employment we should see lower poverty rates. Yet when we look at the correspondence between state-level minimum wage levels and poverty levels, that’s not what we see.

min wage

Poverty levels from the US Census, information on state minimum wage laws from NCLS

The trend line indicates that states with lower poverty levels tend to have higher minimum wages, while the states that have no state minimum wage also tend to have higher than average levels of poverty (with the exception of New Hampshire.) In practice, all states are bound to ensure compliance with the federal minimum wage of $7.25 as a bottom bound to wages, but it’s clear that higher minimum wages are certainly not hurting anyone.

Higher minimum wages are associated both with lower levels of poverty and higher median incomes.

min wage income

Higher median incomes, meanwhile, are very strongly associated with lower poverty levels.

poverty median income

It’s decent wages that get people out of poverty, not just “having a job.” Making sure that companies provide a decent minimum wage allows us all not to be in the position of covering those gaps.

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3 Responses to Minimum wage

  1. Kevin says:

    From the “best way with least unintended consequences” department– I wonder if a relatively low minimum wage is best, but with a social contract to supplement from the government side as a better fix. It’s subsidizing companies, yes, but it’s allowing the job to remain in existence. Also, if the Healthcare Act eventually works well, maybe the big deal about providing insurance will be pulled out of the equation and 40 hour weeks will be more common– rather than maintaining minimal hours in order to avoid one’s workers being “full time” and triggering other employment laws.

  2. Pingback: Alice Elliott for Maine Legislature

  3. Emily Shaw says:

    The idea that increasing the minimum wage reduces employment, though a standard element of introductory economics courses, is still debated among labor economists. If that’s the case, the magnitude of the effect can’t be so tremendous either way. My naive guess would be that there’s some positive consumer demand effect from increased minimum wages that works to counter the effect of increased employer costs. I mean, I’m not an economist, but don’t you think that Walmart would see some direct increased demand if they increased their wages?

    I am with you on the possibility that the ACA will end up changing this dynamic, especially with expanded Medicaid. I hadn’t thought about the fact that part-time jobs might be less common – that’s an intriguing idea. I’ve heard the opposite concern – that more people will be moved to even leaner part-time schedules in order to avoid triggering the need to provide it – but you could be right! That would be great.

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