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A political number

Failing to achieve an increase in New York’s minimum wage to $10.50 an hour, Gov. Andrew Cuomo has responded by proposing an even higher jump—to $15 an hour. That’s 71 percent above the current rate of $8.75.

Common sense tells you this will not fly in the Legislature, with the Republican-controlled Senate, so it’s hard to see it as more than a political move. That said, let’s consider the merits.

Research on the impact of minimum wage laws is voluminous and it offers plenty to both sides of the debate. A 2014 study by the non-partisan Congressional Budget Office, for example, found that hiking the federal minimum wage to $10.10 an hour from $7.25 would help lift 900,000 Americans out of poverty but also cost 500,000 workers their jobs.

That finding highlights one of the chief problems with minimum wage increases—they produce both winners and losers. The minimum wage, which is earned by poor heads of households and middle class teenagers alike, also does a poor job of targeting those who most need help. The CBO report said less than one-fifth of the increased earnings would go to families in poverty.

With an increase to $15 an hour, some of the negative consequences would be amplified. For example, a bigger hike creates a stronger incentive for firms to automate or try to get more out of fewer employees.

No one disputes the need to raise the earnings of low-income workers. The minimum wage is not the only way to do that, however. Warren Buffett and many economists have argued for an expanded and improved earned income tax credit.

Another option is a direct wage subsidy from the government. This approach, put forth by Nobel Prize-winning economist Edmund Phelps, blends benefits of the minimum wage and EITC.

Neither the EITC nor a wage subsidy involves a mandated hike in labor costs, so there is no hiring disincentive. And both are specifically targeted to the working poor.

Mr. Cuomo has hopped on the nationwide “Fight for $15” bandwagon. It’s unfortunate he did not instead choose to lead the push for a better alternative.

9/18/15 (c) 2015 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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