The wage hike gamble

In the fourth installment of the WBUR Here & Now series on the minimum wage, two economists discuss the impact a wage hike could have on jobs and the economy.

We’ve been clear about how dramatic and rapid wage hikes would impact the restaurant industry: it will force restaurant operators to look for more experienced employees, limiting their ability to offer opportunities to Americans looking for their first job or a fresh start. The nonpartisan Congressional Budget Office concluded that raising the federal minimum wage to $10.10 would result in 500,000 — and as many as 1 million — lost jobs. Fifteen could mean millions more.

As California Restaurant Association president Jot Condie said at a recent event:

“A restaurant owner is not going to gamble on an inexperienced, untested worker at $15 an hour. Certainly hours for employees are going to be reduced. And for those that have been thinking about adopting technology, this will absolutely increase that adoption.”

More importantly, as Professor David Neumark suggests in the WBUR segment, drastically raising the minimum wage will not actually lift Americans out of poverty: “Much of the evidence, not all of it, has very much difficulty finding much effect on the poverty rate, either positive or negative. I’ve characterized it as kind of a wash, it moves money around between different low income families, but doesn’t really raise a lot of them substantially.”

Warren Buffett made a similar point in an interview with Fox Business earlier this week, and proposed that to truly help combat income inequality and reduce poverty, we should increase the earned income tax credit.

“I think it is far more effective in terms of reducing poverty to increase the earned income tax credit. The earned income tax credit rewards work, basically and you have to work to get it. But it does put real money in people’s pocket and does not distort supply and demand for labor…If you raise the minimum wage substantially, I think a lot of people would not have jobs whereas through the earned income tax credit you can accomplish the same thing and yet keep the jobs and reward work.”

The restaurant industry is deeply committed to helping our employees succeed economically and achieve the American dream. Let’s focus on advancing policies that will actually help them do so.