Raise the Minimum Wage — Now!

By Shlomo  Maital

   America and Israel both have a chronic poverty problem.  President Obama now speaks of “a relentlessly growing deficit of opportunity” in the U.S.   In Israel, three end-of-year poverty reports reveal a bitter picture of hungry children, a fifth of the population under the poverty line and persisting lack of mobility across income classes.    Most distressing is the working poor.  Many of those in poverty, in America and in Israel, are hard-working, with jobs. But they still can’t make a living, because they are not paid living wages.

   A simple solution?  Raise the minimum wage.   Economist disagree on this.  Some studies show it would hurt employment and actually hurt the working poor. Some studies show it would help.  And of course, you can use econometrics and statistics to show anything you wish.

   Two Princeton Univ. researchers, Alan B. Krueger and David Card,  found a ‘natural experiment’ that helped resolve this issue.  Some 20 years ago, notes Annie Lowrey in her New York Times column, during the 1990/1 recession,  New Jersey raised its minimum wage to $5.05 an hour, from $4.25, while neighboring Pennsylvania chose not to.  Card and Krueger surveyed fast-food restaurants along the NJ-Penn. Border and surveyed them twice, during 11 months, to see how many they employed.  Economic theory says, when labor gets more expensive, you buy less.  But to their surprise, there was no change in employment in the N.J. restaurants, relative to the Pennsylvania ones.  Low-wage work went up in price, but demand for it stayed the same.  McDonalds workers today earn $7.25 an hour, the federal minimum.  Their real wage has gone down since 1992. 

    Despite this study, economists still disagree.  A survey shows that a third of economists thinks raising the minimum wage to $9/hr. would make it harder for low-skilled workers to get a job, a third thinks it wouldn’t, and a quarter don’t have a clue.  So – forget the economists. Do the right thing.  Listen to Card and Krueger.  Raise the minimum wage to $10.  It’s the right thing to do.   

  For the 9 months ending Sept. 30/2013, McDonalds had $21 b. in worldwide revenue,  $6.6 b. in operating profit and $4.2 b. in net income.  Yes, that’s a 20% net margin!   They can afford a small rise in the minimum wage.   And don’t let them tell you they will fire any workers as a result. 

* D. Card, A. B. Krueger, “Minimum wages and employment: a case study of the fast food industry in NJ and Pennsylvania”,  NBER working paper, no. 4509, Oct. 1993.