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POLITICS: PennAve

Minimum wage increase: Good policy, better politics for Democrats in 2014

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Politics,Congress,Democratic Party,2014 Elections,PennAve,Joseph Lawler,Economy,Minimum Wage

Raising the minimum wage might be good policy for President Obama and congressional Democrats, but it's even better politics.

President Obama began advocating a raise in the minimum wage from its current $7.25 level with his February State of the Union Address and continued through his Dec. 4 speech on the economy. In recent weeks, Obama has signaled his support for a bill offered by Iowa Sen. Tom Harkin and California Democratic Rep. George Miller that would raise the rate to $10.10. Democratic leadership has also picked up the charge, with Majority Leader Harry Reid promising a Senate vote in early 2014 on the minimum wage.

Running on the minimum wage, and against likely House GOP opposition to a hike, would play into one of Democrats' greatest advantages over Republicans, namely the perception that Democrats are more concerned with lower- or middle-class workers.

These efforts have taken place against a backdrop of successful state-level minimum wage initiatives and nationwide efforts by left-wing and union-backed groups to push increases.

Obama recommended a higher minimum wage on policy grounds in his Dec. 4 speech in Washington, saying that “there’s no solid evidence that a higher minimum wage costs jobs, and research shows it raises incomes for low-wage workers and boosts short-term economic growth” and also pointing to the high wages and generous benefits offered by successful companies like SAS, a North Carolina statistical software company, and REI, an outdoor sport retailer, as evidence that mandating higher wages would boost growth.

At a Dec. 18 press event, Obama's top economic adviser, Council of Economic Advisers chairman Jason Furman, added more detail to the White House's case for raising the minimum wage, which the president says is lower in inflation-adjusted terms now than it was when Harry Truman was in office. Furman noted a seminal study by the labor economists David Card and Alan Krueger (another former Obama adviser) comparing employment at fast food restaurants on either side of the New Jersey-Pennsylvania border following a minimum wage hike in New Jersey that found that the law did not cause employment to fall in New Jersey, as would have been predicted by minimum wage critics. Furman also cited a 2010 study in the Review of Economics and Statistics that extended that study design to “thousands” of matched counties across state borders, arguing that such “quasi-experimental” evidence provides the clearest indication that minimum wage increases boost workers' earnings without harming employment.

President Obama has advanced increasing the minimum wage as part of his approach to rising income inequality, which Obama called the “defining challenge of our time” in his speech.

Whether raising the minimum wage would significantly reduce income inequality is an open question. Although the minimum wage is low, in real terms, by historical standards, it actually has been rising over the past 20 years for most Americans, during the same period that inequality has also been taking off.

Furthermore, as Massachusetts Institute of Technology economist David Autor has pointed out, most of the inequality increase decried by Obama over the 1990s and 2000s has come as a result of the rise of the 1 percent. While the ratio of the income taken by the 90th percentile of earners to the income taken by the 10th percentile has risen steeply over that period, the rate between the 50th and 10th percentiles has not. Given that the minimum wage only affects workers at the lowest percentiles of income, the data suggest that the minimum wage is not related to recent trends in inequality.

Nevertheless, Democrats have other reasons to support a minimum wage increase. For them, it’s good policy and even better politics.

Raising the minimum wage is broadly popular. A December Wall Street Journal-NBC News poll found that 63 percent of Americans favor raising the rate to $10.10, with Democrats and independents strongly in favor and Republicans and self-identified Tea Party members evenly divided on the issue.

Early in 2013, Democratic Congressional Campaign Committee chairman Steve Israel, a congressman from New York, said that the minimum wage would be a key campaign issue for Democrats in the 2014 midterm elections. Contrasting Democratic and Republican approaches to the minimum wage would be “a reminder to suburban independent voters that House Republicans are extreme, and out of touch,” Israel told the Washington Post.

Running on the minimum wage, and against likely House GOP opposition to an increase, would play into one of Democrats’ greatest advantages over Republicans, namely the perception that Democrats are more concerned with lower- or middle-class workers.

That “empathy gap” proved to be one of Barack Obama's assets in the 2012 presidential campaign. Even though voters believed, by a slim margin, that Republican Mitt Romney was the better candidate when it came to the issues of the economy and federal debt, Obama negated that handicap with a massive advantage on the question of empathy: 81 percent of voters said that Obama “cares about people like me” in Washington Post exit polls, compared to just 18 percent who said the same of Romney.

By pushing the minimum wage issue ahead of the 2014 elections, they are elevating the question of fairness in voters’ minds, to their own advantage.

But fairness is not only relevant for campaigns. Some minimum wage supporters say that promoting a sense of fairness is itself sufficient reason for setting a minimum wage.

A 2007 survey of economists who had publicly endorsed raising the minimum wage to its current level of $7.25 found that the majority of those who responded believed that the hike would benefit the economy and workers overall “through its effects on broad sociopolitical mechanisms, such as those involving the character of the polity.”

Some of the respondents said even more explicitly that raising the minimum wage was economically advisable because it would promote fairness.

For example, Bernard Wasow, an analyst with the left-leaning Century Foundation, defended the higher minimum wage as a “low cost demonstration of concern for low wage workers that causes little damage. Elicits a buy-in by low wage workers to the polity.”

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Author:

Joseph Lawler

Economics Writer
The Washington Examiner