Teresa Tritch and the Birmingham Bounce

August 21st, 2015 at 3:19 pm

Curse you, Teresa Tritch of the NYT’s editorial page! I–not you–am the one who connects progressive economic stories to obscure jazz pieces!

JK! Ms. Tritch highlights a great and surprising development: “By a vote of 7 to 0 with one abstention, the city council of Birmingham, Ala. adopted a citywide minimum wage this week of $10.10 by 2017, with increases for inflation every year after that.” The increase still has to be approved by the city attorney.

In recent years, as more states have adopted minimum wages above the Federal level (29, thus far), I’ve argued that the federal minimum wage is becoming the southern minimum wage. So I’ve been pleased and surprised to see developments like this one, or the recently legislated increase in Arkansas, Nebraska, and other red places, even if it does take away a talking point.

At some level, what we have here is the triumph of research and fact over fiction. I’m old enough to remember NYT editorials that opposed the minimum wage based not on empirical evidence of what actually happened when the wage floor was raised, but on their allegiance to the classical model of labor supply and demand. The assumption there is that the market is “in equilibrium” and thus a price change (in this case, the price of low-wage workers) would have the unintended consequence of pricing them out of the market.

Then came the modern era of minimum-wage research, launched by David Card and Alan Krueger and now summarized by Belman and Wolfson, wherein rigorous statistical research on the outcome of moderate increases in the minimum wage showed the policy to have its intended effects, or, as Belman and Wolfson summarized it in their highly praised tome: “the effect of the minimum wage has largely been one of intended consequences.” To the extent that there’s an equilibrium at all in low-wage labor markets, it’s often one in which low-wage workers with little to nothing in the way of bargaining power are exploited. The higher wage floor thus shifts a bit of “economic rents” back into their paychecks.

Those whose minds can be changed by new information–and that includes the NYT editorial page–have absorbed this work, and as elite opinions moved, many policy makers, particularly at the sub-national level, have supported advocates’ calls for increases in state and city minimum wages.

So as low-wage workers in Birmingham get a bounce, as will the businesses there in which they shop, go ahead and do the Birmingham Bounce right along with them, courtesy of Ms. Tritch!

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One comment in reply to "Teresa Tritch and the Birmingham Bounce"

  1. Smith says:

    There are two issues missing from the minimum wage debate.

    1) I would argue that even if a higher minimum wage resulted in a significant net loss of jobs, that it is an economic necessity for an adjustment to be made. Admittedly this is easier for me to say because I don’t presently hold a minimum wage job, or run a business dependent on minimum wage employees.
    Theoretically, one would presume idle workers no longer employed at wages below the new minimum would eventually find work, but at the higher minimum. It would not be skills holding these workers back, since 1/3 of new job openings through 2022 are predicted to require less than a high school diploma (so says the BLS). However, since the federal government’s mandate was causing the temporary distress to a small segment, it would be incumbent upon them to provide a) unemployment insurance equivalent at least to the previous minimum, b) economic stimulus measures to ensure minimum wage caused unemployment doesn’t last long.

    2) There is an inflationary effect in raising the minimum wage whereby the price of everything increases, but thankfully not to the same degree as the wage increase (otherwise the increase would be pointless). This is especially relevant to geographical areas where the minimum wage is closer to the median. Somehow when the gasoline price doubles and oil companies reap windfalls, no one cries for the independent gas station owners losing business (although they actually make their money on repairs), but when the fast food industry flips over increases, and workers get the benefits, that’s a bigger problem. Even conceding fast food demand is more elastic (like the country’s waistline) than gas, why is it a catastrophe compared to the funding of MidEast theocratic monarchs and big oil? In fact, oil demand is very elastic that fracking has fueled record SUV and truck sales. A worst case analysis shows the big mac price could rise by 1/3 http://www.nationalreview.com/15-dollar-an-hour-fast-food-wages-will-raise-prices Less big macs eaten? I’d say that’s a feature, not a bug.