As Massachusetts legislators consider raising the state’s minimum wage, they will encounter a problem: Economists are often at odds about whether such a move would help or hurt the economy.
It is a debate that spans decades, with some economists arguing that an increase in the minimum wage will benefit poor families and the broader economy by increasing their spending power. But others say it forces employers to pare back hiring in an economy that desperately needs jobs.
The truth is somewhere in the middle, said Nariman Behravesh, chief economist at the Lexington forecasting firm IHS Global Insight and author of the book “Spin-Free Economics.”
“People who think it’s going to kill the economy, kill small business growth, well, I don’t think so, and people who think this will kick start the economy are out to lunch,” Behravesh said “There’s exaggeration on both sides, and like in a lot of these debates, reality gets lost, swamped in the rhetoric.”
The debate is raging in Massachusetts, where legislators are considering a bill that would raise the state’s minimum wage for the first time in four years. Minimum wage in the state is $8 an hour, but the proposal would increase it to $11 an hour in stages by 2015 and adjust it periodically for inflation. The minimum wage for tipped employees, such as waiters, would jump to $6.30 an hour from $2.63.
‘Reality gets lost, swamped in the rhetoric.’
The National Employment Law Project, a left-leaning think tank in Washington, said about 809,100 Massachusetts workers now earning $8 or more an hour would benefit from a wage increase to $11 an hour. And the group said the change would help about 370,000 children living in homes where a parent would get a raise.
But another think tank, the Employment Policies Institute, which is partly funded by the restaurant industry, said in a press release that a $1 increase in Massachusetts minimum wage could result in the elimination of as many as 3,500 jobs.
The institute cites the work of several economists, including David Neumark, an economics professor at the University of California Irvine and coauthor of the book, “Minimum Wages,’’ which he wrote with William L. Wascher, associate director of research and statistics at the Federal Reserve Board.
Neumark said in an interview that some employers will make adjustments when the minimum wage goes up. While that can take many forms, such as price increases, it also means many employers will hire fewer workers or reduce staffing levels. A research paper published in the Journal of Human Resources by Neumark, Wascher, and Mark Schweitzer, an economist at the Federal Reserve Bank of Cleveland, concluded that when minimum wage rose, some low-wage workers’ hours and employment fell and their income declined as a result.
Neumark said the Obama administration has proposed increasing the national minimum wage to $9 an hour from $7.25 in stages as a way to help poor and low-income families. Yet about a third of minimum wage workers are in families earning more than $55,000 a year, which places them in the top half of income distribution nationally, Neumark said.
“People can argue about the results, but the minimum wage does not target poor families well,” he said. “Most families are poor because they have no workers, not because they have low-wage workers.”
At a recent hearing before the Legislature’s Joint Committee on Labor and Workforce Development, Bradley A. MacDougall, vice president for government affairs for Associated Industries of Massachusetts, the state’s largest business group, asked legislators to consider findings such as Neumark’s in determining whether to raise the state’s minimum wage.
“A review by this committee is warranted of the data available regarding the various negative impacts of an increase to the minimum wage as well as a review of who is helped and hurt by that increase,” MacDougal told lawmakers.
Yet such a review would also have to include research finding no evidence that increases in minimum wage lead to job losses. Arindrajit Dube, an economics professor at the University of Massachusetts Amherst, is the lead author of a study published in 2010 by Harvard’s “Review of Economics and Statistics” that found no evidence that minimum wage increases between 1990 and 2006 caused job losses among teens or restaurant and retail workers.
Dube said that unlike Neumark’s research, his analysis took into account regional and state differences in unemployment, minimum wage requirements, and other factors to track restaurant and retail employment.
“It doesn’t reduce the number of jobs . . . and workers stick around their jobs longer,” he said.
Dube said he supports minimum wage increases in Massachusetts because the gap between rich and poor has been widening for decades and because such increases can play a small but important role in raising wages at the bottom.
Both Dube and Neumark do agree on one thing: the need for more research on the effects of minimum wage.
IHS’s Behravesh said he takes a pragmatic approach to the policy questions that must be addressed in the immediate future. While there are more effective ways to target and help the poor, he said, the minimum wage must be raised periodically to catch up with inflation.
“It won’t do the damage some suggest or create the benefits others suggest,” Behravesh said. “This is inflationary catch-up.”