In his latest column for the New York Times, Paul Krugman, the award-winning economist and best-selling author, says that the time is now to hike the minimum wage.
Krugman begins his article by noting that wages for those in retail — like the cashier at your local Walmart or McDonald's — haven't been stagnant but have actually fallen, when adjusted for inflation, over the past 30 years. One of the chief things that could be done to help these workers, Krugman says, would be to raise the minimum wage. "Although the national minimum wage was raised a few years ago, it’s still very low by historical standards," Krugman writes, "having consistently lagged behind both inflation and average wage levels."
Krugman then notes that because most beneficiaries of a higher minimum wage would be workers in food service or sales, the argument that a wage hike wouldn't work due to foreign competition won't hold water. "Americans won’t drive to China to pick up their burgers and fries," Krugman notes. What's more, Krugman says the economic literature on a minimum wage hike suggests that the effects on employment will be negligible, while the impact on workers' earnings will be significant.
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.