Economists fly blind on effect of 2 states’ shift to $15 wage

WASHINGTON -- Research over the past few decades suggests raising the minimum wage has little negative impact on overall employment.

However, most past minimum wage increases have been relatively modest, and there's no data to confidently predict what might happen after the kinds of increases now planned in California and New York.

Going to $15 an hour represents a 50 percent rise from California's current minimum pay of $10, and a 67 percent jump for New York.

Although these would be phased in over several years and would not apply statewide in the case of New York, the sheer size of the increases has made even proponents of higher minimum wages a little worried.

It's an experiment with potentially profound consequences -- some good, some bad -- that could extend far beyond the borders of those two states, with ramifications for the health and direction of the U.S. economy and society.

"The minimum wage debate hints at the very essence of who we are, how we function together and what we'll become," said Arthur Laffer, the well-known economist who served as an adviser to President Ronald Reagan.

Because teenagers and young adults hold a disproportionately large share of low-wage jobs, they figure to be among the hardest hit, pushed out by older and better-educated workers who will be drawn by the higher pay offered by retail stores, food services and other businesses.

That could hurt opportunities, especially for black teenagers, one of the most vulnerable groups in America. The unemployment rate for blacks ages 16 to 19, while down by almost half from 2010, still stands at 25 percent. That compares to 13.9 percent for white youth and 15.6 percent for Hispanic youth.

If policymakers blame high crime in cities such as Chicago on steep poverty and unemployment, Laffer asked, should they still advocate for a high minimum wage that might reduce jobs for the youth and exacerbate social problems?

Another side effect of higher minimum wages may be that teenagers will be "induced to leave school, interrupting or prematurely ending their formal education," write researchers Dale Belman of Michigan State University and Paul Wolfson of Dartmouth's Tuck School of Business.

But they added that research findings about the impact on schooling and minority youth are not conclusive enough to be used by policymakers.

There is little doubt that the higher minimum wages in California and New York will help reduce the disparity in earnings between the highest and lowest paid workers in those states.

In California, the bottom 10 percent of wage earners made on average $9.48 an hour last year, a 20 percent increase since 2005, unadjusted for inflation. Workers in the top 10 percent of wages earned on average $53.08 an hour, a 35 percent jump from 2005, according to data from the Bureau of Labor Statistics.

The upshot is that the difference between the bottom and top 10 percent of wages in the state has widened over the past decade, to $43.60 an hour from $31.35. The trend is almost exactly the same for New York.

With minimum wages set to rise steadily in the years to come, and during a period when inflation is forecast to stay historically low, low-wage workers "will achieve a much higher level than they ever have, and that will reverse decades in which wages have been stagnant or falling at the bottom of the distribution," said Michael Reich, chair of UC Berkeley's Institute for Research on Labor and Employment.

"It's going to provide people, not with security, but with fewer headaches," he said. "If their car breaks down, they might have money to repair it or buy a used car, which will help them get to work, to child care and so on."

Business on 05/10/2016