Greg Mankiw’s post this past Thursday regarding the minimum wage begs for discussion. Perhaps it is because the post is nothing more then two links. The issue of raising the minimum wage however is not that simple. Those that support an increase point to all the people that it could help, and argue that it wouldn’t cause damage to the recovery and may even help it. Those that oppose the increase marginalize the effect and worry about distortions of the labor market. While there is research to support the case that no negative effects would come from the increase, I feel there is a stronger case to be made. While many are troubled by income inequality, I feel that a certain amount of inequality is both good and necessary. What is far more important is social mobility. The Federal Government should increase the minimum wage in order to maintain the social mobility that is critical to the United States economy.
Increasing the minimum wage can increase social mobility directly. There is a lot of research to support the claim that an increased minimum wage results in things like increased productivity, higher employee morale, and increases employee retention. Happy employees that are more productive and work at a job longer don’t stay entry level for very long. By increasing the minimum wage, you can increase the workers chance of gaining the skills they need to command a bigger wage. More money also makes it easier for them to make the decisions needed to get out of poverty, as research shows that those living in poverty actually suffer cognitive impairment because of it. A little bit more of a margin for error could be all someone needs to be able to consistently make the decisions necessary to improve their life.
The current federal minimum wage is at $7.25/hr. $7.25/hr. is low, representing roughly $15,000 a year, which is barely more then the federal poverty level for an individual of $11,670, before taxes. Increasing the minimum wage to the requested $10.10/hr. may prove to have too much opposition, as the Congressional Budget Office predicts that could cost up to a million jobs through 2016. In order to expedite the process by removing such arguments against an increase, an increase to $9/hr. could be implemented. As the CBO paper shows, this would result in far fewer predicted losses. It would also raise the annual income to $18,720/year, which provides a little breathing room above the poverty level. It should be noted that states would still be able to increase their minimum wage if they felt conditions warranted an increase. For instance, San Francisco has a rate of $10.74 (and an unemployment rate of 4.8%, well below the national average). This reflects both the higher cost of living in the city, as well as the lack of negative effects of increasing the minimum wage, despite serious income inequality.
The opponents of the increase are right about something though. Increasing the minimum wage will not fix is poverty. But this shouldn’t be the revelation that the opposition makes it out to be. If minimum wage laws fixed poverty, then why are we still dealing with it? Poverty is a complex social issue that depends on more then just income. Increased social mobility can aid in the fight against poverty, by making it easier to better oneself and rise out of poverty.
The minimum wage in 1960 was $1.60/hr. Adjusted for inflation, today that is $10.56/hr. Increasing the minimum wage, and the benefits that come with it like worker retention and increased productivity increase social mobility by creating paths out of poverty. Even though you can’t make someone take such a path, it must be available to everyone. To encourage this, the minimum wage should be increased to at least $9/hr. in order to preserve the social mobility that has been a hallmark of the United States since it was founded.