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What’s the economic sweet spot for adjusting the federal minimum wage?

November 10, 2015 at 6:40 PM EDT
Thousands of workers walked off the job in as many as 270 cities in a push to increase the federal minimum wage to $15 an hour, up from $7.25. Gwen Ifill speaks to Alan Krueger of Princeton University, who believes that wages should be raised, but not so fast and not so high.
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GWEN IFILL: As New York Governor Andrew Cuomo moved to raise that state’s minimum wage to $15 an hour today, a national battle over pay played out from coast to coast, as fast food and other low-wage workers took their protests to the streets.

Thousands of workers pushing for an increase in the minimum wage were expected to walk off the job in as many as 270 cities today, with protests in more than 200 others.

WOMAN: Maybe I wouldn’t have to work two jobs, and maybe I wouldn’t have to work seven days a week, you know, or even sometimes we work on holidays just to make a little holiday pay extra.

GWEN IFILL: Organizers who favor raising the federal wage to $15 an hour planned for today’s actions to be the largest strike ever by employees of the fast food industry.

The federal minimum wage has been set at $7.25 an hour since 2009. Democratic presidential candidates Martin O’Malley and Bernie Sanders back the $15 push.

SEN. BERNIE SANDERS, Democratic Presidential Candidate: They have had the impact of moving Los Angeles and San Francisco and other cities to raise the minimum wage. They are doing it.

GWEN IFILL: But some Democrats say the hike should be lower, $12 an hour, in part because some cities and states have raised minimums on their own. Hillary Clinton and Labor Secretary Tom Perez have said they support a $12 measure now in Congress. But many businesses and most Republicans say raising the wage that high would cost jobs.

Nearly all of the Republican candidates who will debate in Milwaukee tonight support keeping the minimum wage well below $15 an hour.

Continuing our coverage of this ongoing debate, we turn tonight to a prominent labor economist who believes wages should be raised, but not so fast and not so high.

Alan Krueger is the former chairman of President Obama’s Council of Economic Advisers, and he’s now a professor of economics and public affairs at Princeton University.

Welcome, Professor Krueger.

You have written that the $15 raise — you have written that raising the minimum wage to $15 an hour is a risk not worth taking. Why is it not?

ALAN KRUEGER, Princeton University: Well, first of all, Gwen, I would draw a distinction between the worker activism that you highlighted at the beginning and the federal minimum wage.

I think it’s wonderful to see workers get more engaged. We have a long tradition in this country of promoting worker voice, worker activism to support their own pay. And I think there are certainly some sectors that can handle a $15-an-hour minimum, but at a national level, I think that’s a different story.

And just to give you an example, the research I did two decades ago with David Card of Berkeley, we looked at what happened when the minimum wage in New Jersey went from $4.25 an hour to $5.15 an hour, which is the equivalent today of going from $7.25 to $8.60 an hour, very far from $15.

And what we found was that an increase at this more moderate level, well above where it is today, didn’t have an adverse effect on employment. Other studies have reached a similar conclusion.

GWEN IFILL: So you’re suggesting — just moving it to today for a moment — that the difference between $12 and $15 an hour is what?

ALAN KRUEGER: No, the point I’m making is an increase to $12 at a national level is a considerable increase. It would put the minimum wage above where it’s been in the history of the United States.

And if you move it up to $15 an hour nationwide, I’m concerned that that is well beyond what we have seen in past research. And if I were advising the president today, I would say I think that’s a risky level.

GWEN IFILL: Why is it even necessary for there to be a federal floor, when so many states and cities are stepping in? That’s what a lot of Republicans are saying.

ALAN KRUEGER: Well, most of the Republican candidates favor keeping the minimum wage where it is or getting rid of it, from what I have heard in the earlier debates. And I hope they get asked about that tonight.

We have in some sense a nationwide labor market. The minimum wage is a standard of fairness. We also use the minimum wage to help redress the imbalance in bargaining power between employers and firms. And I think if we abolish the federal minimum wage, which is what you asked about, you would have some states that didn’t have a minimum wage at all or a very low one, and that would be unfair to other states that have a higher minimum wage.

So we have a long history in the U.S. of having a federal floor, and raising it from time to time. It’s stalled considerably after adjusting for inflation in the 1980s. And I think it’s only fair to put it back in real terms where it was previously or a bit above it.

GWEN IFILL: Well, risk is obviously in the eye of the beholder. And you say your research has shown that there will not be jobs lost as a result of raising the minimum wage even to $12.

So, how do you support that argument? Because it seems to make sense that if you have to pay more, that you’re going to have to employ fewer people.

ALAN KRUEGER: Well, a couple of things.

One, you look around the world, and countries that have raised their minimum wage to around that level have not seen job losses. The best work most recently has been done looking at the U.K., which has a low pay commission, bipartisan commission, employers, labor groups, academics, which repeatedly finds no adverse effects from raising the minimum wage, but a big help for low-wage workers.

And at a theoretical level, the labor market is not as competitive as we often teach in our first introductory lectures. There are a lot of frictions in the job market, and what many employers find is that with a higher minimum wage, they have lower turnover. They get more job applicants. They can fill vacancies that they have. Morale is higher. Productivity is higher, and that enables them to afford the higher minimum wage.

And I think that’s the case up to a certain level. And if the minimum wage exceeds a certain level, then I think you start to find undesirable effects.

GWEN IFILL: All right, Alan Krueger, thank you very much.

ALAN KRUEGER: My pleasure.

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