Maybe we don’t need to see St. Louis burn, because Puerto Rico already has:

The report cites one surprising problem: the federal minimum wage, which is at the same level in Puerto Rico as in the rest of the country, even though the economy there is so much weaker. There are probably some people who would like to work, but because of the sickly economy, businesses can’t afford to pay them the minimum wage.

Someone working full time for the minimum wage earns $15,080 a year, which isn’t that much less than the median income in Puerto Rico of $19,624.

The report also cites regulations and restrictions that make it difficult to set up new businesses and hire workers, although it’s difficult to know just how large an effect these rules might or might not have on the labor market.

A report by the New York Fed also suggests that Puerto Rico has a relatively large underground economy employing a big part of the population. These workers aren’t taxed or counted in formal employment numbers.

In any case, it’s relatively expensive to hire and pay workers in Puerto Rico, which along with the high cost of transportation, energy and other goods, means that fewer tourists are planning trips to Puerto Rico than they were a decade ago and the number of hotel beds is the same as it was four decades ago, according to Krueger and her colleagues.

This doesn’t speak to the appropriate minimum wage level in high-cost places like Los Angeles and Seattle, but it does point to the dangers of setting a national minimum wage with those places in mind and disregarding other places. Notably, the Washington Post itself downplayed the downside to the Puerto Rican minimum wage just a few months ago:

Based on that experience, Freeman thinks a few things might happen if the federal minimum goes up to $12. First, some companies might find ways to work around it, either by having their employees work off the clock or by turning them into independent contractors. That’s not ideal, but it at least allows people to keep collecting some paycheck.

“There are many ways that firms and workers will make sure that people don’t lose their jobs,” Freeman says. “If you say that 90 percent of the people get higher wages, and that’s what you want to have happen, and then 10 percent find ways to wiggle around so they keep their jobs, that’s a pretty good outcome.”

Second, if jobs do disappear, Freeman figures that people will move to areas of greater opportunity. “Minimum-wage workers tend to be young people, so they’re reasonably mobile,” he says. “Mississippi is the lowest-wage state in the country. If it tips you to move to Georgia, which has higher wages, that’s a reasonable response.”

Which, to me, involved a lot of handwaving away. I don’t mind people moving from Mississippi to Atlanta for the sake of greater economic opportunity. I don’t even mind bribing them to move if it’s better for the economy overall and better for their long-term prospects. But this isn’t really that. This is sort of handwaving damage done to the Mississippi economy in a “burning a village to save it” sort of capacity. And unnecessarily so, given the lack of portability of most minimum wage jobs. A lot of people won’t leave, and a lot of jobs will still need to be done. And allowing them to work for less – and allowing employers to pay less – is not a strike against the dignity of the worker, who can afford to live as well in Mississippi as someone with a higher minimum wage would be able to live in Atlanta.

But even setting aside the emigration question, there remains the question about those who stay behind. Which is the problem that Puerto Rico is facing now and the problem that Mississippi too would face. And could become a problem for a majority of the country. The $12 minimum wage nationally is analogous to the hike that occurred in Puerto Rico, to the point that the Washington Post felt comfortable pointing to it as a reason not to fear its repercussions.

Minimum wage advocate Arindrajit Dube is unmoved, however. There almost certainly is more to it than just the minimum wage. And perhaps the Krueger report is misguided entirely? The problems described therein, though, do seem real and precisely of the sort critics of the minimum wage have argued would occur.

Again, this isn’t an argument against raising the minimum wage – or even raising it aggressively in places – but it does suggest a degree of caution is warranted. Contrary to what I’ve heard some people say, raising the minimum wage to $12/hr (much less $15) is not bringing it in line with historical norms. It’s breaking new ground, at least over a dollar an hour highest than the highest minimum wage we’ve ever had (and which we had only briefly). That should be reason for concern, and Puerto Rico provides justification of proceeding with caution.

{Link via Oscar Gordon}

Category: Statehouse

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