Rising wage inequality and stagnant real wages have contributed to inequality in family incomes during the past three decades. While the expansion of the Earned Income Tax Credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP) have helped mitigate the impact on low-income families (Bitler and Hoynes 2010), federal minimum wage policy has not contributed to the solution. The federal minimum wage has failed to keep pace with both the cost of living and the median wage in the labor market. As a consequence, working full-time at the minimum wage does not allow many families to escape poverty, or to attain economic self-sufficiency.

State and local governments can set minimum wages in excess of the statutory federal minimum wage. Indeed, state and local governments have played an important role in establishing minimum wages across the country; as a result, thirty-seven states had state minimum wages exceeding the federal level in 2007 prior to the most recent federal increase. Cities, too, have begun setting higher minimum wages, as evidenced by city-level wage minimums in Albuquerque, San Francisco, San Jose, Santa Fe, Seattle, and Washington, DC; other cities are actively exploring possibilities of raising minimum wages. 

In this policy memo, I propose a framework for effective state and local minimum wage policy. First, I propose using half the local-area median wage as an important gauge for setting an appropriate level of the minimum wage. Second, I propose that state and local governments take into account the local cost of living as a relevant consideration in setting a minimum wage, and I provide estimates of how state minimum wages would vary if they reflected cost-of-living differences. I also recommend the use of regional consumer price indexes (CPIs) to index the local minimum wage. Finally, I propose that cities and counties coordinate regional wage setting to mitigate possible negative effects of local mandates. 

The implementation of the state and local framework does not override the need for reform at the federal level. Thoughtful reforms to the federal minimum wage can help reduce poverty and mitigate inequality. The federal minimum wage has been the focus of substantial debate by academics and policymakers; this proposal focuses on state and local reforms that have received substantially less attention. These state and local reforms can be an important part of the policy portfolio for reducing the incidence of poverty and for helping low-income families support themselves as they strive toward the middle class. In particular, although the federal minimum wage serves as a floor in the labor market, there is some room for additional increases in higher-wage areas.

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• Designing Thoughtful Minimum Wage Policy at the State and Local Levels - Full Text

Reducing inequality and expanding opportunity are central challenges increasingly acknowledged by leaders across the political spectrum. Policymakers generally agree that one key solution is to prepare young people and adults with the skills to earn a good income. Unlike other advanced countries, however, reform proposals in the United States have typically included little or nothing about apprenticeship—a highly cost-effective mechanism for developing workplace skills and for reducing youth unemployment. However, interest in apprenticeship models is building in the United States, partly because of the recent successes of Britain and South Carolina in stimulating major expansions of apprenticeship training. A robust apprenticeship system is especially attractive because of its potential to reduce youth unemployment, improve the transition from school to career, upgrade skills, raise wages of young adults, strengthen a young worker’s identity, increase U.S. productivity, achieve positive returns for employers and workers, and use limited federal resources more effectively.

Apprenticeship prepares workers to master occupational skills and achieve career success. Under apprenticeship programs, individuals undertake productive work for their employer, earn a salary, receive training primarily through supervised work‐ based learning, and take academic instruction that is related to the apprenticeship occupation. The programs generally last from two to four years. Apprenticeship helps workers to master not only relevant occupational skills, but also other work‐related skills, including communication, problem solving, allocation of resources, and dealing with supervisors and a diverse set of coworkers. The course work is generally equivalent to at least one year of community college. Completing apprenticeship training yields a recognized and valued credential attesting to mastery of skill required in the relevant occupation. Unlike the normal part-time jobs held by high school and college students, apprenticeship integrates what young people learn on the job and in the classroom. Box 7-1 describes a successful youth apprenticeship program in Georgia. (See the PDF for Box 7-1).

In some ways, apprenticeship offers an alternative to the “academic-only” college focus of U.S. policymakers. Increasingly, placing all of our career-preparation eggs in one basket is leaving young adults, especially minority young men, well behind. Among young adults ages twenty-five to thirty-four in 2013, 49 percent of all women and 37 percent of African American women had earned at least an Associate degree; for men, the comparable figures were 40 percent and 28 percent, respectively. Furthermore, in 2011–12, nearly two African American women earned a bachelor’s degree for every African American male who earned one (National Center for Education Statistics 2013). Despite the well-documented high average returns to college, variations in interests, capacities, and learning styles suggest many young people would benefit far more from alternative pathways to rewarding careers than they do from academic-only pathways. 

Apprenticeship can narrow the postsecondary achievement gaps in both gender and race. Having learning take place mostly on the job, making the tasks and classroom work highly relevant to their careers, and providing participants with wages while they learn are especially beneficial to men, particularly minority men. Apprenticeship can give minorities increased confidence that their personal efforts and investment in skill development will pay off, giving graduates a genuine sense of occupational identity and occupational pride. 

Additionally, apprenticeship is a useful tool for enhancing youth development. Young people work with natural adult mentors who offer guidance but allow youth to make their own mistakes (Halpern 2009). Youth see themselves judged by the established standards of a discipline, including deadlines and the genuine constraints and unexpected difficulties that arise in the profession. Supervisors provide the close monitoring and frequent feedback that helps apprentices keep their focus on performing well at the work site and in the classroom. 

Furthermore, apprenticeship is distinctive in enhancing both the worker supply side and the employer demand side of the labor market. On the supply side, the financial gains to apprenticeship are strikingly high. U.S. studies indicate that apprentices do not have to sacrifice earnings during their education and training and that their long-term earnings benefits exceed the gains they would have accumulated after graduating from community college (Hollenbeck 2008). The latest reports from the state of Washington show that the gains in earnings from various education and training programs far surpass the gains from all other alternatives (Workforce Training and Education Coordinating Board 2014). A broad study of apprenticeship in ten states also documents large and statistically significant earnings gains from participating in apprenticeship programs (Reed et al. 2012). 

On the demand side, employers can feel comfortable upgrading their jobs knowing that their apprenticeship programs will ensure an adequate supply of well-trained workers. High levels of apprenticeship activity in Australia, Canada, and Britain demonstrate that even companies in labor markets with few restrictions on hiring, firing, and wages are willing to invest in apprenticeship training. While no rigorous evidence is available about apprenticeship’s costs and benefits to U.S. employers, research in other countries indicates that employers gain financially from their apprenticeship investments (Lerman 2014). 

In general, firms reap several advantages from their apprenticeship investments. They save significant sums in recruitment and training costs, in reduced errors in placing employees, in excessive costs when the demand for skilled workers cannot be quickly filled, and in all employees being well versed with company procedures. One benefit to firms that is rarely captured in studies is the positive impact of apprenticeship on innovation. Well-trained workers are more likely to understand the complexities of a firm’s production processes and therefore to identify and implement technological improvements, especially incremental innovations to improve existing products and processes. A study of German establishments documents this connection and finds a clear relationship between the extent of in-company training and subsequent innovation (Bauernschuster, Falck, and Heblich 2009). In the United States, evidence from surveys of more than 900 employers indicates that the overwhelming majority of them believe their programs are valuable and involve net gains (Lerman, Eyster, and Chambers 2009). Nearly all sponsors reported that apprenticeship programs help them meet their skill demands—87 percent reported that they would strongly recommend registered apprenticeship programs, and another 11 percent recommended apprenticeship programs with some reservations. Other benefits of apprenticeship include reliably documenting appropriate skills, raising worker productivity, increasing worker morale, and reducing safety problems.

While apprenticeship offers a productivity-enhancing approach to reducing inequality and expanding opportunity, activity in the United States has declined in recent years to levels about one-tenth of those in Australia, Canada, and Britain. Some believe the problems include inadequate information and familiarity with apprenticeship, an inadequate infrastructure, and expectations that sufficient skills will emerge from community college programs. Others see the main problem as an unwillingness of U.S. companies to invest, no matter how favorable government subsidies and marketing policies are. In considering these explanations, we should remember that even in countries with robust apprenticeship systems, only a minority of firms actually hires apprentices. Since the number of apprenticeship applicants already far exceeds the number of apprenticeship slots, the main problem today is to increase the number of apprenticeship openings that employers offer. Counseling young people about potential apprenticeship opportunities is a sensible complementary strategy to working with the companies, but encouraging interest in apprenticeship could be counterproductive without a major increase in apprenticeship slots. 

Developing a more robust support system for apprenticeship programs requires action at various levels of government. This proposal consists of a series of targeted initiatives that rely on both state and federal support. At the state level, governments could develop marketing campaigns to persuade employers to create apprenticeship programs, and to build on existing youth apprenticeship programs. At the federal level, the government could provide federal subsidies to encourage take-up of existing vouchers for apprenticeship programs; designate occupational standards for apprenticeship through a joint Office of Apprenticeship (OA)–Department of Commerce (Commerce) team; and develop an infrastructure of information, peer support, and research within the Departments of Commerce and Labor.

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• Expanding Apprenticeship Opportunities in the United States - Full Text

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• Policies to Address Poverty in America -- Full Book

At 77 years of age, the federal minimum wage deserves a respite from the day-to-day combat of political life. Today, protestors around the country are demanding a $15 minimum. But few observers think this level is economically desirable: even fewer think that it is likely.

Democrats want a higher minimum, and say so loudly. Republicans of a free-market persuasion mostly do not—but tend to stay silent because they know that swing voters look positively at raising the wages of low-earners.

The minimum wage is lagging…

Congressional political stalemate has meant the U.S. wage floor has lagged behind median earnings. In contrast wage growth in other OECD countries has performed much better, as this graph produced by the Hamilton Project shows:

Advanced nations have de-politicized minimum wage decisions

The federal minimum wage is an established piece of the U.S. policy furniture—and one that is quite dated. It now makes sense to consider taking some of the power and responsibility for setting the wage rate out of the hands of politicians—just as interest rates are set by the Federal Reserve.

This is not a novel proposal in international terms. In most advanced economies, minimum wage decisions are not purely political. Out of 66 countries studied by Tito Boeri in 2009, 24 delegate the determination the minimum wage level to a tripartite body; 26 countries set the minimum wage after taking advice following formal consultation between the Government and representatives of employers and workers; and just 16 countries (including the U.S.) set the minimum wage through a simple legislative vote.

Over in the U.K., the Conservative Prime Minister David Cameron just jacked up the national minimum wage by 3% up to £6.70, with barely a squeak of protest from employers or the right wing of his own party. Why? Because, like his two predecessors, he simply followed the advice of the Low Pay Commission, which is comprised of nine commissioners—three each from trade unions, employer organizations and academia.

Two options for taking the political heat out of the U.S. minimum wage

Can the U.S. follow suit? And if it can, what might the new system look like? Two options at least are worth considering.

1. A Federal Minimum Wage Advisory Board. This could be made up (like the U.K. version) of nine members: three representatives of employer organizations, three from labor organizations, and three independent labor economists. The Board would recommend a rate for the national minimum wage each year, which would then be enacted by Congress in the usual manner. The Board would have a strong incentive to set a rate likely to be adopted by Congress, in order to establish and maintain its reputation: there is, after all, little point in sitting on a Board that is ignored. The Board’s recommendation would not be binding and would not become the legal ‘default’ level. But because the advice is likely to be sensible, Congress would likely be inclined to follow it.

2. Wage Indexation. An alternative—favored by my Brookings colleague Gary Burtless—would be to simultaneously raise the minimum wage and introduce automatic indexing, lifting the minimum wage at the same rate as either consumer prices or the median wage—preferably the latter. In effect, this would do for the minimum wage what President Nixon did for Social Security. Congress would have the power to suspend a rise—perhaps if unemployment reached a certain threshold—but the default position would be to link changes in the minimum wage to changes in the median wage or in the broader consumer economy.

Policy commitment devices in action

These are both examples of what I have called policy commitment devices—in a new paper, Ulysses Goes to Washington—that help to overcome political myopia in order to support longer-term policy objectives. In the first case, taking advice from an independent commission, the commitment is somewhat less binding, although as James Madison knew, ‘the counsels and checks of friends’ can carry plenty of weight. Indexation would be a tighter form of binding, since inaction on the part of politicians would lead to an uprating of minimum wage, rather than the current stasis.

For both sides, there are political attractions to sub-contracting some decision-making power over the minimum wage. By accepting the advice of an independent body or allowing indexation to do its silent work, Republicans can keep their business donors and right-wing critics at bay; Democrats can do the same for unions and the political left. Sometimes the most powerful thing politicians can do is give some power away. The minimum wage is now perhaps a case in point.

Improving the labor market and encouraging work are central to our goals of achieving greater responsibility and opportunity in America. The private economy is the arena where most Americans work hard to realize their dreams.

But employment today is failing to achieve the promise it did a few decades ago. Wages of unskilled workers have been fairly stagnant in real terms (especially among men) and have fallen relative to those of more-educated workers; and some groups of Americans (like less-educated men generally and black men, specifically) are working considerably less than they once did.

Stagnant wages and low work participation among some groups of workers are blocking progress. Both must be addressed.

In Chapter 4 of a new report from the AEI-Brookings Working Group on Poverty and Opportunity, the Working Group recommends policies that:

1. Expand opportunities for the disadvantaged by improving their skills;
2. Make work pay better than it does now for the less educated;
3. Expand both work requirements and opportunities for the hard-to-employ while maintaining an effective work-based safety net for the most vulnerable members of our society, especially children; and
4. Make more jobs available.

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• Download Chapter 4: Work
• Explore the full report

In the course of my graduate work at Harvard University, I paid hundreds of Americans living in poverty the equivalent of about $2 an hour. It was perfectly legal for me to do so, and my research had the approval of my university’s ethics board. I was not alone, or even unusual, in basing Ivy League research on less-than-Walmart wages; literally thousands of academic research projects pay the same substandard rates. Social scientists cannot pretend that the system is anything but exploitative. It is time for meaningful reform of crowdsourced research.

This is what crowdsourced research looks like. I posted a survey using Mechanical Turk (MTurk), a website run by Amazon.com. Across the country, hundreds of MTurk workers (“turkers”) agreed to fill out the survey in exchange for about 20 cents apiece, and within a few days I had my survey results. The process was easy, and above all, cheap. No wonder it is increasingly popular with academics; a search on Google Scholar returns thousands of academic papers citing MTurk, increasing from 173 in 2008 to 5,490 in 2014.

Mechanical Turk is a bargain for researchers, but not for workers. A survey typically takes a couple minutes per person, so the hourly rate is very low. This might be acceptable if all turkers were people with other jobs, for whom the payment was incidental. But scholars have known for years that the vast majority of MTurk tasks are completed by a small set of workers who spend long hours on the website, and that many of those workers are very poor. Here are the sobering facts:

• About 80 percent of tasks on MTurk are completed by about 20 percent of participants that spend more than 15 hours a week working on the site. MTurk works not because it has many hobbyists, but because it has dedicated people who treat the tasks like a job.
• About one in five turkers are earning less than $20,000 a year.
• A third of U.S. turkers call MTurk an important source of income, and more than one in ten say they use MTurk money to make basic ends meet.

Journal articles that refer to Mechanical Turk. Source: PS: Political Science and Politics

It is easy to forget that these statistics represent real people, so let me introduce you to one of them. “Marjorie” is a 53-year-old woman from Indiana who had jobs in a grocery store and as a substitute teacher before a bad fall left her unable to work. Now, she says, “I sit there for probably eight hours a day answering surveys. I’ve done over 8,000 surveys.” For these full days of work, Marjorie estimates that she makes “$100 per month” from MTurk, which supplements the $189 she receives in food stamps. Asked about her economic situation, Marjorie simply says that she is “poverty stricken.”

I heard similar stories from other MTurk workers—very poor people, often elderly or disabled, working tremendous hours online just to keep themselves and their families afloat. I spoke to a woman who never got back on her feet after losing her home in Hurricane Rita, and another who had barely escaped foreclosure. A mother of two was working multiple jobs, plus her time MTurk, to keep her family off government assistance. Job options are few for many turkers, especially those who are disabled, and MTurk provides resources they might not otherwise have. But these workers that work anonymously from home are isolated and have few avenues to organize for higher wages or other employment protections.

Once I realized how poorly paid my respondents were, I went back and gave every one of my over 1,400 participants a “bonus” to raise the survey respondent rate to the equivalent of a $10 hourly wage. (I paid an additional $15 to respondents who participated in an interview.) This cost me a little bit more money, but less than you might imagine. For a 3-minute survey of 800 people, going from a 20-cent to a 50-cent payment costs an additional $240. But if every researcher paid an ethical wage, it would really add up for people like Marjorie. In fact, it would likely double her monthly income from MTurk.

Raising wages is a start, but it should not be up to individual researchers to impose workplace standards. In this month’s PS: Political Science and Politics, a peer-reviewed journal published for the American Political Science Association, I have called for new standards for crowdsourced research to be implemented not only by individual researchers, but also by universities, journals, and grantmakers. For instance, journal editors should commit to publishing only those articles that pay respondents an ethical rate, and university ethics boards should create guidelines for use of crowdsourcing that consider wages and also crowdsourcers’ lack of access to basic employment protections.

The alternative is continuing to pay below-minimum-wage rates to a substantial number of poor people who rely on this income for their basic needs. This is simply no alternative at all.