The Case for Raising the Minimum Wage to Address Labor Shortages

As we saw in the years following the 2008 recession, lots of business owners are frustrated by labor shortages. They argue that these shortages are caused by a lack of incentive to work, and propose to generate that incentive by making life more difficult for the unemployed. In this case, they argue for restoring work requirements for unemployment and eliminating the federal unemployment supplement enacted in the waning days of Trump administration. This is a highly punitive way of generating incentive, and those who support these measures often accuse our unemployed citizens of laziness. They could instead generate incentive by raising wages. A recent study from the Federal Reserve indicates that the vast majority of workers aren’t being discouraged. As long as workers anticipate that their unemployment benefits may eventually come to an end, they will accept work even when the work pays less than the benefits do. Only the workers at the very bottom of the wage distribution face an incentive problem. Today I want to discuss how the study works and what it means for the minimum wage debate.

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