Cynical Thoughts On The Minimum Wage

Arindrajit Dube surveys the post-Card/Krueger minimum wage literature and concludes that their study basically holds up. My general view, with apologies to empirical econometricians doing policy-relevant work everywhere, is that one can generally Google up a study supporting whichever conclusion one prefers.

Consequently, I’ve always thought the most persuasive evidence on this was simply the big picture:

It’s clearly not the case that the high real minimum wage of the 1960s led to unusually elevated unemployment during that decade. And the fact is even more striking when you consider that the real wages of folks in the top quintile were way lower back then.

That said, the whole debate strikes me as perhaps in need of a bit more cynicism. The whole idea that higher minimum wages are a job killer in equilibrium seems based on some heroic assumptions about enforcement. I heard a story of a magazine being told that some reconfiguration of minimum wage rules was going to render its entry-level jobs illegally low-paid. The answer was to reclassify the entry-level workers as “interns” and reclassify the salary as a “transportation stipend” and the problem was solved. There are actually a bunch of exemptions to minimum wage law. When the minimum wage goes up is there an increase in the number of people defined as eligible for the “executive, administrative, professional and outside sales employees” exemptions? Or suppose you sometimes pay a teenager as a “babysitter on a casual basis” taking advantage of her exemption from the minimum wage law. If congress changes that law, and now you’d have to pay her more than you can afford, are you going to lay her off (per the conservatives) or just pay her under the table? Is she reporting that income to the IRS anyway? The most interesting research question, if you ask me, would be to see if higher minimum wages are associated with more wage theft since I bet people off all ideological persuasions could approach that with a minimum of blinders.

Fraud and loopholes aside, I think the most important factor to keep in mind is that at the margin higher minimum wages should push low-skill workers into a greater mix of cash to non-cash forms of compensation. Within reason, this is probably a good idea. But either way, in all contexts it’s difficult to create well-enforced prohibitions of voluntary exchanges. That’s as true for minimum wage labor as it is for marijuana sales or anything else.