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The Case for a Higher Minimum Wage

In their push to increase the US federal minimum wage from $7.25 to $15 per hour, President Joe Biden and his fellow Democrats are on solid ground not just economically but also politically. A higher wage floor would create an impetus for good jobs, which is precisely what Western economies are lacking.

BOSTON – Efforts in the United States to increase the federal minimum wage from $7.25 to $15 per hour have gained steam now that the Democratic Party controls the White House and Congress. Such a move makes sense both economically and politically.

Economists are no longer as skeptical of minimum wages as they once were. It used to be assumed that labor markets worked flawlessly, thereby denying employers the monopoly power with which to extract “rents” above the fair return for their physical capital investments. Under such circumstances, basic economics predicts that a higher minimum wage would reduce employment.

But research since the late 1980s has, for the most part, failed to find major disemployment effects from modestly higher minimum wages. The first salvo came from David Card of the University of California, Berkeley and the late Alan B. Krueger of Princeton University (partly building on joint work with Lawrence F. Katz). Their seminal work – summarized in their book Myth and Measurement: The New Economics of the Minimum Wage – found that reduced employment did not follow minimum-wage hikes; in some cases, employment actually rose when wage floors were raised.

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