Minimum Wage Debate Is Really About Social Values

 
 
Debate over raising the minimum wage tends to focus on costs and benefits, but economist Matthew Weinzierl argues that what really is at stake are much deeper societal values.
 
 
by April White

Suddenly, the minimum wage debate is on high boil. Perhaps spurred by growing concern over wealth inequality, minimum wage proposals are heating heat up in cities from Chicago to Albany, and in states from South Carolina to Florida. Harvard Business School Associate Professor Matthew Weinzierl tackles several large questions underlying the issue.

April White: When we talk about a minimum wage increase in the United States, what are we really talking about?

Matthew Weinzierl: The US federal minimum wage is not very high—it's much lower in real terms than it has been for much of the last several decades—and it's hard to argue that a mild increase in a low minimum wage would cause a lot of unemployment. Nevertheless, a minimum wage increase is controversial. Why is that? Because the conversation is really about much more than a technical debate on the costs and benefits.

Most people are aware that the long-term economic path for the United States has some challenges. Spending outstrips our forecast for revenue by an enormous amount and that requires some adjustment. We'll have to either raise taxes or cut spending. People don't always understand the technical details of these policies, but that's really not the point. The point is: People are debating much bigger questions. What do we want this society to be like?

Q: This year we've seen debates about the minimum wage at the city and state level. Why?

A: States and cities are always competing—for business, for talent, and so on. These regions and cities are trying to decide what kind of regions and cities they want to be. California is a good case study. A few years ago, California was in complete crisis, fiscally. One option was to become a more "competitive" state—lower taxes, lower spending, "lean and mean." The other perspective was, "No, that's not who California is." They decided to raise taxes and to continue to support a wide set of public goods, including support for the poor.

Q: Your research is ultimately hopeful about finding a middle ground on issues like the minimum wage and tax policy.

A: You can think that people have only crude knowledge about the minimum wage and that they get it only from screaming people on TV and, to some extent, that's true. But on the other hand, there are people screaming on TV about the minimum wage. It may be a good sign that Americans have discussions with that kind of passion about what might seem like dry policy issues. At the same time, in reality, most normal people who do not have microphones find both sides somewhat right.

Much of my recent research on tax policy, where the same trade-offs are at stake, has shown that most people are sympathetic to the logic behind progressive taxes and, simultaneously, the logic behind flatter taxes. The policies we see, whether tax rates or the minimum wage, reflect the public's efforts to find the right balance between these competing arguments. That may not be pretty, but it makes me hopeful.

Q: How do people make decisions about these big economic questions?

A: Economists have a very good way of thinking carefully—scientifically, you might say—about the mechanical effects of an economic policy. We are not very good at thinking about the broader value judgments underneath those decisions.

Q: What part does the minimum wage debate play in larger policy discussion about income inequality?

A: We know that income inequality has been rising dramatically over the past several decades. If rising inequality is a signal that more people are falling too low, the minimum wage feels like it is a way to provide a floor below which no family can fall. But that's not always true, because people don't always have jobs. If you want to provide this minimum floor because you are worried about widening inequality, you can't just have a minimum wage increase, you also have to have tax policies that address income inequality more broadly.

About the Author

April White is a senior content producer for the HBS Alumni Bulletin.

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    • Lisa Munderback
    • Chief of Operations, Day One
    And what if the minimum wage was actually a livable wage? This is certainly a social value of many; but how would it affect the overall economics of the US? If people were paid a livable wage that provided enough funds for food, healthcare, housing, heat, etc., the government could reduce spending on many programs. Some funding would still be needed for those incapable of having a job or unable to find one, as this article states.
    • Brian Weeden
    • Engineer, Lockheed Martin
    One would have to also think about the end result. When did the jobs at fast food or the summer jobs for teenagers become so important to sustain a family? Where is the motivation to grow as a professional and a person? I would not like my children's goal to support their family off of a minimum wage.
    • Marcel Henry
    • Executive Director, Sigma Pi Phi Fraternity
    I have read numerous comments from living wage opponents that define minimum wage workers as teenagers who work in fast food establishments, but the fast food only represents a fraction of the workers in this category. Think of the services used by the middle class on a daily basis: the salesperson at Nordstrom, your barista at Starbucks, the assistant who washes your hair at the salon, or the person who changes your oil at Jiffy Lube. These jobs are an integral part of our society, and these workers perform meaningful tasks that the middle class wouldn't perform themselves. If we only made these "stepping-stone" jobs only to be occupied for a short period of time, businesses would suffer from a high turnover rate, resulting in higher training costs. There is a real benefit for employees to have some amount of tenure in a job. Being able to pay rent, buy food, clothing and healthcare and the necessities of life are a reason
    able expectations while in the position. We all hope that people have greater aspirations, but the fact of the matter is that everyone can't be the boss. We NEED a stable front line work force.
    • Wayne Lingard
    • CEO, Process Way Consulting Ltd
    A call for a minimum wage is really a replacement for the union movement. Or its a predecessor to a union movement. Corporate america cannot continue to make the rich richer and the poor poorer without suffering some form of backlash. Many moons ago the Russians lined people up against a wall for having too much. That should be warning enough. The trickle down effect must at least be seen to be working ! Society does not tolerate excess abuses of power or financial gain for too long before it starts making noise.
    • Gail L Johnson
    • Author of 'Two Years to Democracy', Libri Anatum Publishing
    Human beings require food, shelter and clothing to survive. This is not a liberal or conservative opinion. It is a fact.

    In an agrarian society human beings mostly provided their own necessities themselves. In our industrial or post-industrial society, jobs are necessary to supply these very most basic needs.
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited
    Like in US, non- payment of minimum prescribed wages is a burning topic in India too. There are umpteen number of cases where the basic right is denied to the employees. We also come across instances where workers are paid less but made to sign on receipts showing higher amounts to throw dust into the eyes of the regulators.
    Much is planned at government levels to curb such unethical practices but at the ground level little improvement is visible.
    A mammoth effort alone can lead to better results. Exemplary punishment to the guilty can create some scare but this is not done due the fraudsters' clout. Even if caught and legally proceeded against, they take advantage of the long time taken in settling court cases.
    • Arby
    • Director
    The minimum wage is like a shotgun - it may well hit the target, but it is likely there will be plenty of 'negative externalities.'

    Yes, it is nice and good to have a 'safety net' that keeps people and families from living/starving on the streets. That said, a uniform wage requirement is a blunt force instrument with plenty of negative repurcussions. It provides wages that otherwise might not be supported by the economic benefit they provide to lots of people that are not supporting families - think well-off high school kids. It also provides a wage rate that differs markedly depending on if you are a high or low cost area of the country. It might be fine to have a $10 or $15 an hour wage rate in New York City or San Francisco, but it makes absolutely no sense a rural town in, say, Kansas. In many places, a higher minimum wage simply means less workers or a larger impetus to replace workers with technology.

    What government often overlooks (and I spent 20 years in government and now 10 years in the private sector) is that the private sector cannot sustain itself without there being a profit at the end of the equation. This isn't the way government policymakers think about the world. In the long run, if the public sector cannot build these required rates into their model and come out with a profit, they will either leave, close up shop, or change the mix between people and technology. If that equation leads to less workers, are we really better off? Perhaps we should just focus on the benefits side.
    • Peter KP Lee
    • Remuneration Consultant, Remuneration Data Specialists Pte Ltd
    Agree that ultimately it is a question of social values.

    As to whether it increases or decreases overall employment, it depends on the context i.e. social conditions and policies including cultural norms and perspectives that affect the work ethic and propensity and ability to work. In other words it is not a matter of simply economic supply and demand because those that would end up not working but are working and paid a living wage also contribute to the economy etc.

    What most people have difficulty accepting is that all communities are social eco-systems that are inter-dependent just like the natural bio eco-system where even the smallest and weakest creatures (ala the weak and "economically-useless) serve a purpose in supporting the whole eco-system.
    • Oscar Berrios
    • Asesor, UNI
    About their exposure between wages, inequality and living standards mentioned that not only have a minimum wage increase, we must also have fiscal policies that address income inequality more generally. The proctuvidad could be an issue?