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Divided experts present debate over minimum wage increases

FILE - In this April 22, 2015 file photo, Ralph Logan, general manager of Microtrain, left, speaks with James Smith who is seeking employment during a National Career Fairs job fair in Chicago. U.S. employers notched another solid month of hiring in March by adding 215,000 jobs, driven by large gains in the construction, retail and health care industries. Despite the jump, the Labor Department said Friday, April 1, 2016 that the unemployment rate ticked up to 5 percent from 4.9 percent. (AP Photo/M. Spencer Green, File)

Minimum wages for workers in California and New York are on the rise following decisions to increase the amount those employees earn were approved by the states' governments this week.

The decision has left some experts clapping and others dismayed, highlighting major division in common economic thought: should the wages be raised?

Sinclair spoke to a variety of economists, all of whom acknowledged the dispute over wages.

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"There are people who have very different views than I have about the value of increasing the minimum wage," explained Lee Howard Adler, Senior Extension Associate at Cornell University's School of Industrial and Labor Relations.

Adler, who believes increased wages are a positive change, described the concern, explaining that "many important respected conservative economists [are] worried about the increase harming people."

Adler explained that he continues to believe the research about that and reality have proven these concerns as inaccurate.

Regardless, Adler said both states "have factored in some cautionary measures," to address such concerns.

"There will be a set of reviews that were announced in New York as part of the new law, and California has also made it clear to its citizens that the Governor has review mechanisms in place that will be watching the impact."

"Those measures seem to satisfy even conservative members of the parties, more in New York than in California" Adler explained.

"This is not going to be like a runaway train, they're going to watch it, and if the Governors see troubling events they have the ability to slow down or not allow a raise in a particular year."

"I think this is a good way to legislate, as it honors people that have doubts about the raise, while recognizing what the majority in both states seeks to accomplish."

Acknowledging the lack of research that has been done on this particular type of wage increase, Adler mentioned a recent study conducted by Berkley.

"There is one fairly important document that's been released," Adler said. While it may not convince some skeptics, Adler noted it was conducted by Michael Reich at the University of California

Essentially, Adler said, Reich and his team studied the "traditional reasons people have," for being concerned about minimum wages.

"They actually said 'we can see that there could be some likelihood in price increases,' there actually may be, in some locations, a change in the composition maybe in the numbers depending on how businesses plan."

"Overall the fact that so many millions of workers," Adler said using the conservative estimate of 6 million, "at least 6 million impacted over the course of the number of years."

Summarizing the study's synopsis, Adler explained that "they believe that more money will be placed in the hands of the people who need it, and much of it will be spent, helping the overall economy."

"That reality, coupled with the fact that small businesses will have such a better work force which does not dwell in poverty [and is] incentivized by higher wages, and likely to be more productive, all will have a positive effect that will level out the increase in employee costs over the next five years."

"This is a complex issue and there's a lot of convincing common sense things," Adler said, noting that so often people look at wage increases with a "perspective too tight, narrow, and not expansive enough."

Adler elaborated on how businesses could prepare for a wage increase by seeing it as not interfering with their abilities to expand. "Say for example someone has $50-100,000 [in] reserve capital profits, [which] the owner hasn't decided to take for his/herself and/or has not made a decision yet about how to invest that money."

In that scenario, Adler said the negative view of wage increases is "look I've been saving this money to expand now I'm going to have to give it to workers."

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"Why not do the math in a different way?" Adler floated.

"Be more creative use it as leverage to gain more from your working people."

If you do that, Adler suggested, the approach "in turn creates a primary source of value to the company."

"That's the positive side," Adler said which is "often overlooked."

Adler described the legislation passed in California and New York as "remarkably significant."

"They address the concerns of the people in America who often work the hardest but get paid the least."

"Many of these jobs which will see increases in wages are and will still be very very tough jobs to take."

"The fact that these two states have done this strikes me as one of the most valuable things our society could do to give millions a better shake," Adler said, calling it "terribly terribly important and wonderful that this has happened."

As Adler noted, not everyone shares his belief in minimum wages. One such economist is Mike Tanner, Senior Fellow at CATO.

"It's a question of who you help and who you hurt," Tanner said explaining that generally it is "the less skilled at the cost of the least skilled."

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The newest hires, those who contribute the least, Tanner said "they're the people who are going to be let go."

"There's almost always a trade-off depending on how big the increase is," Tanner explained.

"Essentially you cannot pay someone more than the value added that they provide," Tanner said "you pay somebody what they're worth."

"If you require a business pay someone more than the value of the employee, they are not going to pay that employee, they're going to let those workers go," Tanner explained.

"Generally those are workers with the lowest level of skills because they bring the least value to the table."

"There's going to be some winners and some losers," Tanner explained.

"One of the things to be concerned about is that the people who earn [the minimum wage] tend not to be the one that needs it the most," Tanner lamented.

"People who support it look at a single mother," Tanner explained.

In reality, Tanner said "only about 5% of minimum wage owners are head of the household with children."

"Most people holding minimum wage are second earners, college students, high school students with their first jobs," Tanner described.

By increasing the minimum wage, Tanner warned "you'll be helping them but maybe kicking out somebody really struggling altogether."

Tanner stressed the importance of examining "these trade-offs in some detail."

It also depends a great deal on where you are in the country, Tanner noted. "Raising [the minimum age] in New York," he explained would "not [have] that much of an impact, given the cost of living there."

The logic is that because it is such an expensive city to live in, the people choosing to live there can already afford to do so. "In Mississippi," Tanner said, close to a third of the population would be affected if you raise the wage to $15 / hour."

That change in Mississippi would have a "significant impact," and is "going to cost a lot of jobs, wages are low down there for a reason."

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Asked how these potential impacts could be avoided, Tanner said "it's always going to be a tradeoff between raising the wages and the employability of the worker."

"That's a given."

Tanner suggested one possible crutch, "you can minimize the cost by the smaller the increase."

"The longer you stretch out the increase, the more likely it is that inflation and productivity will catch up with you, that's a lot less impact than if you raise it tomorrow vs. over time," Tanner explained.

The bottom line stressed by Tanner is that "it's the lowest skilled, the very poor minoritites, people who have the fewest skills to bring to the laborforce," that are most negatively impacted by raising the minimum wage.

Tanner suggested a variety of alternatives to help avoid this negative impacts.

"Rather than raise the minimum raise," Tanner offered utilize the "earned income tax credit."

"A number of states have them at a state level, the federal government has it," Tanner said.

The earned income tax credit, Tanner explained is "essentially wage supplements."

With them, he explained "everyone's bearing the cost, not just the business."

"The other thing you can do is have sub-minimum wages for certain categories," Tanner said.

Tanner referenced the way Great Britain executes this strategy, where people of different age levels have different minimum wages.

Referencing a report by the Obama administration's Council on American advisers, Tanner brought up the added question of automation.

The report, Tanner described, found that "jobs that currently play less than 20 an hour are most likely to be automated in the future."

Because robots are inexpensive, Tanner argued if you raise the cost of hiring employees it may backfire.

Describing Obamacare, mandated sick leave and other benefits, Tanner explained that "everything goes together in raising the cost of hiring a worker."

"A robot looks better and better," Tanner said, noting that there are "already fast food restaurants where you don't talk to a person to place your order, go to a kiosk and punch it in."

"There's company out there that makes a machine puts hamburger together, that trend is going to happen," Tanner said.

"This is certainly going to happen faster," he argued, if you make it more appealing to hire robots.

Further demonstrating the diversity of opinions regarding raising the minimum wage, Mark Pingle, professor of entrepreneurship and economics at The University of Nevada, Reno, explained the two sides of the debate.

"If someone keeps their job, they'll get more," Pingle said when describing the repercussions of wage increases.

"People employ by choice," Pingle said, if you look at the logical decision, no one is going to hire someone if they don't cover their wage.

Basic economic theory, Pingle explained "says higher minimum wage leads to more unemployment."

"To me [and] most economists," Pingle said, noting the school of thought seems to be changing, "basic theory says there are other ways to help the poor that are better than this.

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In this case, Pingle said, the negatives outweigh the positives."

Pingle said that you would "have to get creative to explain why it would be positive."

One possible explanation, Pingle noted was that people will take the minimum wage as saying "you don't deserve a job it you're not more productive," than the next person applying for it.

"If they just take that message and get more productive the minimum wage can pay for itself."

"One of those ways to get trained is a first job," Pingle explained noting that minimum wage is typically what is paid to people in their first job.

"The norm is you don't stay," in that first job, Pingle said.

Like Tanner, Pingle mentioned that there's a difference between raising the minimum wage in different areas, even within states.

"There's a big thing in California," Pingle said, where you have a city like San Francisco and a city like Chico. San Francisco in this comparison serves as New York did in Tanner's: the people calling it home can already afford the high cost of living. Chico is the Mississippi of the scenario, where Pingle said the raise increase will have a "much higher impact where the average wage slower."

"Doing it in increments gives people more opportunity to adjust," Pingle said. While the raised wages will likely still have an impact, Pingle stressed that "instrumentalism is important."

"I would say in general the minimum wage results because of a positive thing," Pingle said noting its roots lay in "a desire to help those who have lower incomes."

What people fail to realize, Pingle argued is that "there's a reason why people earn lower incomes."

"Minimum wage doesn't remove that reason, that's why it's not going to have the positive effects."

Some, Pingle argues, believe companies resist paying more because they can't pay them more, or "they just don't want pay them more," because they're greedy.

"But the problem with that logic is if that's true why do employers pay anyone more than minimum wage?" Pingle argued.

"The only reason employers pay more is because they have to pay for that talent," Pingle said.

Pingle referenced the way celebrities get paid to play sports, put on concerts and perform shows. "You don't want to pay Jim Carrey 20 million a picture but you're willing to," Pingle said because he can bring in 40 million.

"It's the same logic for employment," Pingle said.

"Minimum wage says by law if you're not productive enough to produce $15/hour you don't deserve a job," Pingle said.

Pingle said the ongoing debate over the minimum wage is "definitely political." Adding that it "didn't used to be in economics."

"As I mentioned," Pingle said, there are ways in which it is possible that minimum wage could improve the lot.

Reiterating the notion that minimum wage could create a productivity requirement, Pingle added "normal economic theory would assume that's not what people can go out and do."

"But if they do it, it's possible."

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"There are always ways that you could have a genuine economic argument," Pingle said.

All the economists Sinclair spoke to acknowledged the economic arguments of their peers. The variety of their responses to such arguments provided one single conclusion: when it comes to raising the minimum wage, the success rate of minimum wage increase is beyond debate and will be heavily tested by the actions of California and New York.

Based on their curiosity regarding the debate over these heavily contested proposals the most dependable takeaway seems to be that economists will be watching closely to see how this unfolds.

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