What Economists Say About the Minimum Wage

The night before President Roosevelt signed the law that established the first federal hourly minimum wage, he warned in his fireside chat that we should, “…not let any calamity-howling executive with an income of $1,000 a day, …tell you…that a wage of $11 a week is going to have a disastrous effect on all American industry.”

From 25 cents in 1938, we are looking at $15 in 2021…and still debating if there will be a “disastrous effect.”

The Current State of the Minimum Wage

In addition to more than 50 cities and counties, 29 states and Washington D.C. have a minimum wage that exceeds the $7.25 federal minimum. Meanwhile, President Biden included a step-by-step ascent to a $15 federal minimum wage in his $1.9 trillion stimulus package proposal.

This is where we are now:

Economists’ Opinions

Through the IGM forum, created by the University of Chicago’s Booth School, we can compare economists’ opinions on major public policy issues. A geographically diverse group, their political biases vary, they are old and young, and they specialize in different areas. All have auspicious scholarly credentials.

Asked for an opinion on raising the minimum wage, the approximately 40 responses were mostly divided between agree and uncertain. In a comments section, Harvard economist Eric Maskin’s opinion was typical for the people that added a comment: “An increase to $15/hour is a big jump, and I’m not sure we have the data to know what the effect on employment would be.”

There were two questions. The first expressed the possible negative impact of an increase:

The second question recognized cost of living differences:. Again, agree and uncertain were the dominant replies:

Our Bottom Line: Price Floors

On raising the minimum wage, economic opinion is pretty much split. While the IGM Forum displayed the agree/uncertain split, there also is a vocal group that says no. Oversimplifying, we can say that one group concludes the minimum wage impact is slight, a second cohort says there is job loss, and a third faction cites elevated productivity. Including some auspicious names, most positions have a pretty impressive selection of statistics (and different variables).

Each though looks at the impact of a price floor that currently is $7.25. They just perceive it differently:

My sources and more: Thanks to Marginal Revolution for alerting me to this federal minimum wage research overview. It was also helpful to consider this summary of the negative side while Brookings had the opposite. Then, the National Conference of State Legislatures was perfect for the data.  And finally, you might enjoy (as did I) the IGM Forum for the minimum wage debate and other questions also. Please note that my description of IGM is from a previous econlife post.