Misunderstanding the Minimum Wage

In his State of the Union address last night, President Obama called for raising the minimum wage to $10.10 by 2015, reiterating a theme from a speech last December. Moreover, the President said he would bypass Congress by executive order to do just that for federal contract workers.

This seemed like a good time to address questions and concerns that many have by reviewing the most recent evidence regarding the minimum wage. My review indicates that arguments against raising the minimum wage aren't supported by the evidence and that the benefits from doing so seem to outweigh the costs.

First, some historical perspective. The minimum wage today in real terms (controlling for inflation, which is necessary when comparing dollar amounts over time) is less than it was at its peak in 1968 ($10.77), but greater than it was when first implemented in 1938 ($4.08).

Below I provide a brief summary (with extensive quotes) of a review done last December by Laura D. Tyson, a Professor of Business Administration and Economics at the University of California, Berkeley, and a former chair of the Council of Economic Advisers for President Clinton. Another excellent review making many of the same points can be found in the January 24, 2014 issue of CQ Researcher (gated).

The evidence:

• Raising the minimum wage won't increase unemployment. According to Tyson, "The weight of the evidence consistently finds no significant effects on employment when the minimum wage increases in reasonable increments."