Sunday, September 1, 2013

Living wage - McDonald's isn't lovin' it

Last week fast food workers in a number of cities (including here in Raleigh) walked off their jobs in a symbolic strike in support of higher wages.  Some are pushing for adoption of a "living wage," up to $15/hour. 

Most of the recent publicity has gone to workers in the fast-food industry.  Thanks to a labor market that remains deep in recession, there are more adults working in the industry than ever before.  With many making within $1/hour of the minimum wage, they are having a hard time making ends meet. 

The economic questions to consider are (1) how big of a negative impact would a higher minimum wage have on unemployment, (2) would the gains of those who can still get jobs at a higher minimum wage be large enough to offset the costs to those who no longer will have jobs, and (3) even if the answer to #1 is "small to none" and the answer to #2 is "yes," are there other policies that would achieve the same or better results (in terms of helping those in poverty) with fewer adverse side effects on employment? 

As the results of this poll by Chicago Booth of the country's top economists show, there is a wide range of opinions on #1 (if the minimum only goes up to $9, not $15) and most think the answer to #2 is "yes."  Most studies have found relatively small dis-employment effects, so these two answers are consistent. 

However, in the past the minimum wage has never increased by 100%, which is what a jump from $7.25 to $15 would amount to.  Given the already high levels of unemployment we are facing, it is hard to see how the labor market could absorb such an increase without a massive loss in jobs.  That is why I think more emphasis needs to be placed on other approaches, such as the earned income tax credit and investments in education and training. 

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