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Raise the Floor!

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Talkin' about the arguments and counterarguments for a higher minimum wage over at the NYT Economix blog.

Not wanting to go on for too long, I left out one piece of the opponent's argument: the incorrect claim that the minimum wage affects only young kids whose families don't need the money.

Part of this comes from a sleight of hand that you've got to watch out for. When opponents talk about who's earning the minimum wage, they're often referring to the demographics of those at today's minimum. But that's not the relevant sample when you're evaluating a proposed increase in the wage floor. In that case, you have to look at the demographics of the "affected range:" those earning between the current and new minimum wage.

EPI does so here, considering an increase to $10.10/hour, finding:

-- 88 percent are adults (20+); 56% are women

-- 44 percent have at least some college education

-- 55 percent work full-time

-- They need the extra money: the average affected worker brings home half of her families' income.

Also, as EPI Larry Mishel shows, the decline in the real minimum explains more than half of the increase in wage inequality in the bottom half of the wage scale, 1979-2009, i.e., the growth of the gap between median and low-wages (the 50th and 10th percentile wage).

End of the day, the wage setting story in contemporary America is much more of a bargaining power story than you'd get from the usual economists' rhetoric (my friend Phillip Swagel omits this critical factor here, focusing, as many do, exclusively on technology and globalization-I hope to respond to his essay soon). Or, to be more precise, extreme lack of bargaining clout at the low end, and very high clout enabling excessive "rent extraction" at the high end.

Since little of this has to do with benign concepts like "marginal product" -- it's a about power, not product -- market corrections are needed, including a higher wage floor at the low end and progressive tax policies, along with financial market oversight, at the top (a financial transaction tax kind of scratches both of those itches, no?).

This post originally appeared at Jared Bernstein's On The Economy blog.