Minimum wage gap

Chris Farrell

TEXT OF INTERVIEW

SCOTT JAGOW: When the Democrats take control of Congress next month, right off the bat, they plan to give the country's lowest-paid workers a raise. The federal minimum wage hasn't budged in a decade. It's still $5.15 an hour. But what has changed is the old consensus among economists about the minimum wage. Chris Farrell, how does that go?

CHRIS FARRELL: The big economist complaint about the minimum wage is, yes, you know, you have good intentions to help the most vulnerable citizens in our society, but it doesn't work. It actually hurts the most vulnerable citizens in our society because when you raise the minimum wage, employers stop hiring these least-skilled workers. So that has been the traditional complaint by mainstream economists about raising the minimum wage. Good heart, bad policy.

JAGOW: But now some economists have a change of heart I understand?

FARRELL: They have a genuine change of heart and what it is, is that a number of economists starting in the 1990s, particularly David Card and Alan Krueger, Princeton University. They started doing these studies looking at the impact of the minimum wage and what they found is that it has a very small impact on employment and may not have any impact on employment. And now there was a recent survey of economists about things that they agree on and if you look at like, free trade's a good thing. Alright, most economists say yes free trade's a good thing. The one that they disagreed on, almost divided down the middle, is the minimum wage. And so now what you have is a true, genuine disagreement among economists, which is actually in parts of it quite vituperative, about the impact of the minimum wage and whether or not it should be raised.

JAGOW: So things have been getting kind of nasty about this?

FARRELL: Well it has been nasty in parts although recently, I follow the economic blogs, the virtual ink that has been spilled over the minimum wage, it's fascinating. And what I take away from it, is that you can't make a hard-edged ideological statement. You cannot say, raise the minimum wage, you hurt the most vulnerable workers.

JAGOW: Well can you make the case that raising the minimum wage does have an impact on the lives of low-wage workers?

FARRELL: If you talk to all these economists and all this division about the minimum wage, you can get them to agree on this: They don't think raising the minimum wage is a good way to attack poverty, is a good way to narrow inequality. They much prefer the earned income tax credit. But what I think we can now say is: If you raise the minimum wage, particularly what's being proposed, it's going to help out most of your low-skill workers, at least the paycheck that they're gonna get will have a little bit of purchasing power against inflation which has really eroded the value of their paycheck.

JAGOW: Alright Chris, thanks a lot.

FARRELL: Thank you.

JAGOW: Chris Farrell is the Marketplace economics correspondent. In Los Angeles, I'm Scott Jagow. Thanks for joining us and have a great day.

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