Home | MIT Sloan Fellows | Leadership Blog

How much is a living wage? MIT Sloan faculty experts weigh in

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:

ErikErik Brynjolfsson
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.

SimonSimon Johnson
MIT Sloan Professor of Global Economics and Management

“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.”

ThomasKochanThomas Kochan
MIT Sloan Professor of Work and Employment Research
Co-director, MIT Sloan Institute for Work and Employment Research

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. 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.

Read the complete roundtable about raising the minimum wage with extended comments by all three professors.

Comments are closed.