Four policies better than the minimum wage

Some of my friends are joining the “fight for 15”, a campaign to raise the minimum wage to $15 an hour. I expect the campaign will succeed in many states and maybe at the federal level, and I commend their apparent desire to help poor people. However, if the goal is to help poor people, the minimum wage is an inferior policy tool.

Here are four alternatives that I think would help poor people more than raising the minimum wage:

1. EITC - Expand the eligibility or generosity of the Earned Income Tax Credit.
2. HCVP - Fully fund the Housing Choice Voucher Program, which currently assists just one out of four people who are eligible for assistance.
3. SNAP - Expand the eligibility or generosity of the Supplemental Nutritional Assistance Program.
4. Personal exemption - Raise the personal exemption on federal income tax, or convert the personal exemption into a refundable tax credit. A refundable tax credit with universal eligibility would be equivalent to a basic income.

These policies share the feature that their cost is visible in the form of higher government spending or reduced tax revenue. Raising the minimum wage might be more palatable to Congress because it has no direct budget impact. The cost of the minimum wage is less obvious.

One cost of the minimum wage is borne by employers who pay employees a higher wage. The burden on employers deserves consideration but doesn't bother me. What bothers me is the social cost of the minimum wage, which is borne partially by poor people.

Consider the following thought experiment. If raising the minimum wage is good, why should we stop at $15? Why not $20, or $50, or $500? It would be wonderful for everyone to earn $500 an hour, but I suspect that many employers who pay lower wages now would employ fewer people rather than raise wages to $500 an hour. Losing jobs is bad for poor people.

This intuition is consistent with basic economic theory, which suggests that raising the minimum wage (a price floor) is good for some workers but reduces overall employment. The empirical consensus among economists is that the short run effect on employment is small. I think we should care more about the long run effect on employment, which my colleague Isaac Sorkin argues hasn't really been measured empirically.

The minimum wage helps some poor people and hurts others. Raising it a little would probably on balance be good but not great for poor people. The alternative policies I suggested are better at helping poor people and put the burden where it belongs: taxpayers.