LC Bulletin: Digging deeper-Economists look at wages

April 4, 2014. Retrieved online April 7, 2014 from Bulletin Staff Report , Las Cruces Bulletin

Recent studies, policy alternatives studied alternatively

[Excerpts below reprinted with permission: Read the complete Las Cruces Bulletin article]

Economists discussing the minimum wage are a bit like Aggie and Lobo fans looking to the season ahead. They see different pictures.

Economists, however, are working with elaborate and differing methodologies, study­ing different time periods and environments and even asking different questions. As a result, citizens and policy makers may not find in their data and conclusions a perfect roadmap to eliminating poverty, helping busi­nesses grow and strengthening the economy of Las Cruces.

But their data and conclusions may help inform the discussion.

What follows are comments by New Mexico State University Regents Professor Jim Peach his colleague Christopher Erickson on minimum wage research and alternative ap­proaches to tackling poverty.

Bulletin: The Center for Economic and Policy Research reviewed a boatload of 21st century studies, including several meta data studies, and concluded “the weight of evidence points to little or no employment response to modest increases in the minimum wage.” Is there a real difference between their position and the Congressional Budget Office (CBO) conclusions, which appear to have stirred a lot of controversy by stating their projections in terms of likely number of job losses?

Peach: There is a difference. CBO got it wrong.

Erickson: I have read the CEPR by Schmitt, which I generally agree with. The CBO said that the impact of the president’s minimum wage proposal would be to reduce employment by between 1,000,000 and zero. That is, CBO can’t say that there will be any effect, although their best guess is 500,000 jobs. Thus, the CBO conclusion is very similar to CEPR findings….

Bulletin: The traditional, competitive model incorporates just a couple of employer adjustment channels – declining employment or hours, reduction of benefits and training. The CEPR report, however, states the best statistical analysis indicates little or no negative employment effects from minimum wage increases, and suggests the reason may be that employers have additional adjustment channels, especially actions that increase productivity and the effect of higher wages on performance. What’s your opinion of the new models?

Peach: The new models are a step in the right direction. What most people forget is that the old model only suggests an employment effect if the minimum wage is set above the current market equilibrium wage.

Erickson: Schmitt makes some good points. (His) comments are a summary of the empirical evidence from the literature.

Bulletin: Should the discussion of minimum wage policy be broadened to address the issues of poverty, income disparity and economic opportunity?

Peach: Yes. The objective of raising the minimum wage (this time) is to bring the minimum wage, in real (inflation adjusted) terms, up to what it was decades ago. In many ways this is a matter of ethics – it is simply indecent to pay “starvation wages.” ….

Erickson: Certainly. However, solving those problems requires long-term solutions and can’t be solved overnight. An increase in the minimum wage provides a quick boost to the income of low wage workers. The best long-term solution for poverty is universal pre-K education, but the benefits from such a policy would take a generation to realize.

Bulletin: Should minimum wage policy be set at the local, state or national level? Why?

Peach: National – so that there would be less whining about state and local comparisons. A good argument can be made that it should be international rather than national. The US missed a great opportunity when it was negotiating NAFTA by not requiring a “North American” minimum wage.

Erickson: There is little or no evidence that it makes a difference at what (government) level a minimum wage is set.


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