Arguably, a living wage is the goal of all civilized societies—that is, the amount of money a person needs to maintain a basic standard of living. But what exactly is a sufficient wage? And will increasing the minimum wage create a knee-jerk effect among employers to hit the brakes on hiring?
At present, the hourly minimum wage in the United States is $7.25, and the Democratic Party platform is advocating more than doubling that rate to $15. MIT Sloan asked three of the School’s top economic and labor experts to weigh in on the idea of raising the minimum wage. Here’s what they had to say:
MIT Sloan Professor of Information Technology
Director, MIT Initiative on the Digital Economy
Having more people working and earning good wages is good not just for the people we help, but for all of us: People who work are more engaged in community, creating a virtuous cycle. If we do these three things, we’ll be on track to becoming a richer, more engaged, and more dynamic nation.
#1 Expand the Earned Income Tax Credit
Suppose that someone is earning $12 per hour, and we’d like them to earn $15. With an Earned Income Tax Credit (EITC) they’d get an additional $3 per hour worked from the government. The money to pay for this would come from general tax revenue including income taxes, or ideally increased taxes on carbon dioxide emissions, congestion, and other things we’d like to discourage.
#2 Reinvent Education
The wage gap between the most and least educated workers has grown enormously since the 1980s, and better-educated workers also have much lower unemployment rates and higher rates of workforce participation. But it’s not enough to simply do more of the same. We need to reinvent education for an age where machines are increasingly doing cognitive tasks—the second machine age. That means a greater emphasis on skills like teamwork, project management, persuasion, leadership, coaching, and creativity.
#3 Reduce unnecessary occupational licensing
Over 25 percent of workers now require a license to do their jobs, a five-fold increase since the 1950s. While some licenses are important for safety or other reasons, research has shown that excessive licensing requirements reduce employment and mobility.