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Minimum Wage
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Minimum Wage
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Records of the Council of Economic Advisers (Clinton Administration)
Alan Blinder's Files
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FOIA Number: 2016-0531-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Council of Economic Advisers
Series/Staff Member:
Alan Blinder
Subseries:
OA/ID Number:
2751
FolderID:
Folder Title:
Minimum Wage
Stack:
Row:
Section:
Shelf:
Position:
S
20
2
10
2
bcc: Ms. Amy Zisook
WH Public Liaison
EXECUTIVE OFFICE OF THE PRESIDENT Rin. 122, OEOB
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON, D.C. 20500
March 1, 1993
Dear Mr. Gorman:
The meeting we had last Monday was very useful--I hope
for you as well. Please thank your colleagues for
participating.
I can answer a few questions right away. First, while
the details have not yet been drafted, the Administration's
proposed investment tax credit will include service
businesses; however, the targeted capital gains relief will
not. Second, the Labor Department is still considering the
minimum wage issue and has not reached any decision. I have
passed along your group's views, including the FICA "tips"
credit and the difficulty of using the training wage.
Yours very truly,
ABbh
Alan S. Blinder
Mr. Mark Gorman
Senior Director
Government Affairs
National Restaurant Association
1200 17th Street, NW
Washington, DC 20036-3097
DOL-
2023956947;#
SENT BY:OFFICE OF SECRETARY ; 2-25-93 ; 9:10AM ;
FAX TRANSMITTAL SHEET
file:
minimum
INTERTMENT
OF
wage
of
UNITED
AMERICA LABOR
STATES OF
RECEIVER TELECOPIER #:
395-6947
TO:
Dr. Alan Blinder
FROM:
Larry Katz
DATE:
6 2/25/93
TIME: 9:15 AM
PAGE NUMBER ONE OF
3
PAGES.
TRANSMITTER TELECOPIER: 202-219-7659
ADDITIONAL COMMENTS:
IF YOU HAVE QUESTIONS REGARDING THIS FAX CALL: 219-8271
SENT BY:OFFICE OF SECRETARY ; 2-25-93 ; 9:11AM :
DOL-
2023956947;# 2/ 3
MEMO
TO:
Alan Blinder
FROM:
Larry Katz
RE:
Some Rhetoric on the Minimum Wage
DATE:
February 25, 1993
The Federal minimum wage is currently $4.25 an hour. The
minimum wage was last increased in April 1991 from a level of
$3.80 in 1990. The minimum wage had been frozen at a nominal
level of $3.35 per hour from 1981 to 1990. Despite moderate
increases in the minimum in 1990 and 1991, the real minimum wage
is lower today than at any time in the 1960s and 1970s. A
worker in a full-time, full-year job earning the minimum wage
would generate a family income below the poverty level even for a
family of two and substantially below the level for larger
families. The ratio of the minimum wage to the average wage of
nonsupervisory workers (or all workers) is also lower today than
at any time in the 1960s and 1970s.
There currently exists a youth subminimum wage (or training
wage) for up to 180 days for teenagers. The training wage
expires at the end of March 1993. Most research indicates that
almost no firms use the training wage option. Employer groups
argue that the rules concerning the use of the training wage are
unclear and administratively complex. But survey research by
Katz and Krueger finds that most employers feel they can't
attract workers at the subminimum or do not find the option of
differential wages for teenagers and 20 year olds doing the same
job to be very attractive.
The minimum wage has two primary purposes. The first is as
an anti-poverty program. Although the minimum wage is not a
targeted policy (like the earned income tax credit), it still is
a somewhat effective anti-poverty policy. Many criticize the
minimum wage as an anti-poverty program by arguing that many of
the beneficiaries are teenagers and other "secondary earners"
from middle class families with multiple earners. This is
certainly accurate. Minimum wage workers are spread throughout
the family income distribution and only moderately concentrated
in the bottom two quintiles. Thus increases in the minimum wage
have only trivial effects on the overall family income
distribution. Nevertheless, most research shows that increases
in the minimum wage substantially increase the incomes of many
low-income families and reduce the poverty rate; see recent work
by Ron Mincy in the Monthly Labor Review and work by Mincy and
Horrigan.
The second justification of the minimum wage is as a part of
a minimal set of labor standards designed to prevent firms from
competing on the basis of extremely low wages and that to try to
spur firms to create and maintain the high-wage, high-performance
workplaces. Standard economic theory does not view this
justification very favorably.
SENT BY:OFFICE OF SECRETARY ; 2-25-93 ; 9:11AM ;
DOL-
2023956947:# 3/ 3
The main criticism of the minimum wage is that it serves to
raise employer costs and reduce employment and training
opportunities for teenager and disadvantaged workers. Empirical
evidence covering the experience of the 1950s, 1960s, and 1970s
indicates moderate adverse effects of the minimum wage on teenage
employment (elasticities of around -0.1). Research examining the
experience of the 1980s and 1990s finds even smaller adverse
employment effects. Similar results of little adverse employment
effects have been found using cross-state variation in response
to changes in the Federal minimum wage (Card, 1992; Katz, 1992) ;
examining state minimum wage changes (Card for California and
Card and Krueger for New Jersey) ; and comparising response of
constrained and uncontrained employers in response to minimum
wage increases (Katz and Krueger, 1992) ; and updated time series
research (Wellington, 1991). One recent exception is a study of
employment in California retail trade following the California's
1988 state minimum wage increase. This well-designed study by
Taylor and Kim does find significant adverse effects in low-wge
California counties.
My overall assessment of the evidence is the the employment
response to moderate increases in the minimum wage from today's
historically low level is likely to be small. The employment
elasticity for teenagers is probably in the 0 to -0.1 range and
the elasticities for older workers are essentially zero. Some
low-wage retail trade industries are likely to respond with
somewhat larger employment declines. An immediate large
increase in the minimum wage (more than 15 percent) could have
significant adverse employment effects especially given the
current slow pace of job creation. Moderate increases once
employment growth has become more robust will probably not create
serious negative consequences.