Here is why raising Connecticut's minimum wage is good policy




This was one of the large surprises on the governor's budget speech earlier this month: a proposed minimum wage increase to $10.10 an hour by 2017. You can read the full announcement here.

The minimum wage is one of the most hotly debated topics on economics, and there is an extensive literature on the subject to rely on. Here is what we know on the effects of a minimum wage increase, and why it is good policy for Connecticut:

  • Low wages have a direct cost from the state: we end up subsidizing employers as workers have to apply to government benefits to make ends meet. Wal Mart is probably thebiggest welfare queen in the country, in many ways.
  • This graph is still the best reason to raise the minimum wage. Right now, most economists think raising it is a good idea.
  • From last year: Wade Gibson and Matt Santacroce´s report on who earns the minimum wage in Connecticut, and how it will help the state´s economy.
  • There is a widespread consensus that raising the minimum wage reduces poverty, according to this literature review by Arin Dube at UMass Amherst.
  • The classic study on how minimum wage increases affects jobs is this one by David Card and Allan Kruger. The found that the evidence that it killed jobs was almost non existent.
  • Since then, further research has shed some additional light on the effects of the minimum wage. Mike Konczal has a good review here. Most evidence still points in the same direction: minimum wage increases raise incomes and reduce poverty without destroying jobs.
  • For the truly dedicated, the operational word on why this happens is monopsony The labor market is "special" as "buyers" of labor (that is, employers) have more market power than sellers (that is, workers). Follow the link to see some basic economic modeling.
  • The CBO recently published an analysis on the effects of raising the minimum wage to $10.10 at the Federal level. Their take is that it would increase the earnings of 16.5 million workers, and move 900.000 individuals out of poverty. The only families that see a (very modest) drop of income are those making six times the federal poverty level. The report does say that the increased minimum wage might eliminate some jobs (500,000, to be exact), but the tradeoff in terms of families with higher incomes (and which families get those incomes - mostly working poor) is probably worth it.

We at CAHS support the increase - any potential costs are modest, and the benefits greatly outweigh the drawbacks. Any economic policy has trade offs. An increase in the minimum wage greatly favors those that are the most in need.

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