What Bernie Sanders misses about a $15 minimum wage

The “fight for $15” campaign has helped turn a $15-per-hour minimum wage into a litmus test on the political left. Two of the three Democratic candidates for president, Martin O’Malley and Bernie Sanders, want to institute a national $15-per-hour minimum wage.

“It is not a radical idea to say that if somebody works 40 hours a week, that person should not be living in poverty,” Sanders said in Saturday’s Democratic presidential debate.

But as moderator Kathie Obradovich pointed out, raising the minimum wage that high could price a lot of low-wage people out of their jobs altogether. Neither Sanders nor O’Malley had a convincing response to this concern.

There’s a lively debate among economists about whether higher minimum wages cause unemployment. Conservatives argue that forcing employers to pay more will force them to reduce the number of workers they hire. For two decades, liberals have been citing a famous study by David Card and Alan Krueger showing that a 1992 increase in New Jersey’s minimum wage didn’t cost jobs in the fast food industry — a result that ran contrary to conservative orthodoxy.

That finding has hardened into a liberal orthodoxy that higher minimum wage hikes never cost jobs. When confronted with concerns that a $15-per-hour minimum wage will reduce employment, activists brush them off, as Sanders did on Saturday, by arguing that the higher minimum will put cash in people’s pockets and actually raise employment.

But Alan Krueger, the co-author of that famous fast food employment study and a former adviser to the Obama administration, isn’t so sure. He supports Hillary Clinton’s plan to raise the minimum wage to $12 per hour. But in a New York Times op-ed last month, he argued that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”

There’s extensive research on how small increases in the minimum wage affect employment — Vox’s Matt Yglesias summarized some of it here. But we simply don’t have experience with the kind of large increase Sanders and O’Malley are proposing. And there’s good reason to think that large minimum wage increases could cause a lot more job losses than small ones.

This is particularly important because O’Malley and Sanders are proposing a national $15-per-hour minimum wage. Setting a $15 minimum wage in San Francisco or New York is a different proposition than doing the same thing in Arkansas or West Virginia. In rich cities, most wages are already above the minimum, companies can probably pass on the extra costs to their affluent customers, and some of the burden of adjustment simply takes the form of lower commercial real estate prices. In poorer areas, it’s going to be a lot harder for employers to accommodate the increase without laying off workers.

An extreme example of this comes from Puerto Rico, a US territory that became subject to the US minimum wage in 1983. Reihan Salam describes what happened next:

In the early 1990s, the labor economists Alida J. Castillo-Freeman and Richard B. Freeman found that the “U.S.-level minimum altered the distribution of earnings in Puerto Rico to an extraordinary extent,” and that “imposing a U.S.-level minimum reduced total island employment by 8–10 percent compared to the level that would have prevailed had the minimum been the same proportion of average wages as in the United States.” The result of this massive shock to employment levels was, according to Castillo-Freeman and Freeman, a massive wave of migration from Puerto Rico to the mainland that drew largely on “persons jobless on the island, with characteristics that make them liable to have been disemployed by the minimum wage.”

This 8 to 10 percent decline in employment occurred because Puerto Rico was significantly poorer than the rest of the United States; a minimum wage that made sense on the mainland was way too high for the island.

Something similar seems to be happening in the debate over a $15-per-hour minimum wage. A $15-per-hour minimum wage may make sense for the handful of wealthy cities that have adopted it in the past couple of years. But that doesn’t mean it’s a good idea for the rest of the country, where average productivity is a lot lower. And while Puerto Ricans who lost their jobs were able to look for work in the much larger mainland US economy, given the scarcity of housing in rich coastal cities it’s not so obvious that unemployed workers in Kentucky or New Mexico would be able to move to Boston or Seattle in search of work.