At Equitable Growth:
What’s the right minimum wage? Reframing the debate from ‘no job loss’ to a ‘minimum living wage,’ Working Paper 2016-06, by David Howell, Kea Fiedler, and Stephanie Luce: Abstract The American debate over the proper level of the statutory minimum wage has always reflected the tension between the twin goals of ensuring decent living-wage jobs with maximum job opportunity. The moral and efficiency arguments for a wage floor that can keep a worker above mere subsistence have a long history, dating back at least to Adam Smith. The U.S. federal minimum wage was established by the 1938 Fair Labor Standards Act to ensure a “minimum standard of living necessary for health, efficiency, and general well being of workers” and to do so “without substantially curtailing employment.” In recent years, the best evidence has shown that moderate increases from very low wage floors have no discernible effects on employment, which has strengthened the case for substantial increases in the minimum wage.
But the very strength of this new evidence—research designs that effectively identify employment effects at the level of individual establishments—has contributed to the adoption of a narrow No-Job-Loss (NJL) criterion: that the “right” wage floor is the one that previous research has demonstrated will pose little or no risk of future job loss, anywhere. The economist’s Pareto Criterion—a good policy is one that does no immediate harm to anyone—has replaced the earlier much broader concern with aggregate employment effects, and more generally, with overall net benefits to working families. The explicit moral and efficiency framing of the case for a living wage by earlier generations of economists, advocates, and policy makers has taken a back seat to statistical jousting over which wage floor will pose no risk of job loss (or harm) to anyone.
We think the debate over the proper level of the statutory minimum wage should be reframed from a NJL to a Minimum Living Wage (MLW) standard: the lowest wage a fulltime worker needs for a minimally decent standard of living. This paper illustrates and critiques the recent NJL framing, as well as the usefulness of one metric that has been heavily relied upon for identifying the NJL threshold—the ratio of the wage floor to the average wage (the Kaitz index). We argue that the proper framing of the debate is not over the statistical risk of the loss of some poverty-wage, high-turnover jobs, but rather over the wage floor that establishes a minimally decent standard of living from full-time work for all workers, along with complementary policies that would ensure that any costs of job loss would be more than fully remedied.