Should the federal government raise the minimum wage to $15?

Three MIT Sloan faculty experts weigh the implications

By Kara Baskin  |  July 14, 2016

Should the U.S. government increase the hourly minimum wage from $7.25 to $15? The issue is nuanced: Raising wages would boost employee paychecks, but it could also cause cost-conscious companies to reduce hiring. But with many states taking independent action to increase wages—and with a $15 federal minimum wage “over time” added to the Democratic Party platform last week—we asked three faculty experts to discuss the implications.

Boost jobs through an earned income tax credit, better education, and reduced licensing requirements

Erik BrynjolfssonErik Brynjolfsson

We’ve seen median wages stagnate for almost 20 years in the United States. How can we increase them while also boosting jobs?

Here are three ideas: One: expand the Earned Income Tax Credit, or EITC; Two: reinvent education; and Three: reduce occupational licensing.

Here’s how the EITC works. Suppose that someone is earning $12 per hour, and we’d like to them to earn $15. With an 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. One of the benefits of the EITC is that it encourages employers to hire more workers, unlike increasing the minimum wage. That’s important because I’ve been convinced by sociologists like Bob Putnam that work has value beyond the dollars it provides. It’s good for society to keep people engaged in the workforce, and we should be rewarding entrepreneurs and managers who come up with jobs.

Another way to increase both wages and jobs is by increasing the educational levels of our workforce. 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. I believe these can be fostered in the right educational settings.

Last but not least, we need to 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. Requirements vary widely across states: Michigan requires three years of education and training to become a security guard, while most other states require 11 days or less.

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.

-- ErikBrynjolfsson, professor of information technology and director of the MIT Initiative on the Digital Economy

A higher minimum wage, by region

Professor Simon JohnsonSimon Johnson

I’m in favor of an increased minimum wage, but there is a valid question of “by how much?” Would you lose jobs as a consequence of increasing the minimum wage above some level? Labor economists have studied this carefully, and while there is no consensus, it’s not difficult to support an increase to $12 per hour on the basis of the available evidence.

In areas with higher living costs, a higher minimum wage can make sense—and some states are already planning to phase in $15 per hour over several years.

However, especially in less heavily urbanized areas with a lower cost of living, a higher national minimum wage could have unintended consequences, in the sense of reducing hiring and potentially increasing unemployment.

-- Simon Johnson, professor of global economics and management

A modest, stepwise increase over time

Thaomas KochanThomas Kochan

It’s clearly beyond time to increase the minimum wage. But it’s a political stalemate: It has less to do with economics than politics. Congress has not acted positively on labor legislation for a long time. They block essentially all changes in labor policy, whether it’s increases in wages, updating hourly wage legislation, or in other areas of labor relations law, all of which badly need to be updated.

The stalemate has led states to take action on their own. Half the states have recognized the need for an increase. It’s time to catch up. We’re at $7.25, which is ridiculous.

My view is that $15 is a reasonable target for the future, but we should raise it in steps at the federal level. An immediate jump to $15 would be too abrupt a change. It could have significant negative employment consequences. If we increased it step-by-step with a goal toward $15 over a period of years, it wouldn’t have significant employment effects. We could start at $10, then go up to $15 over four years.

-- Thomas Kochan, professor of work and employment research, and co-director, MIT Sloan Institute for Work and Employment Research