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

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• Policies to Address Poverty in America -- Full Book

In his state of the union and his budget, the President spoke of the stagnation of middle class incomes. Whatever growth we have had has not been broadly shared.  More than 78% of the growth in GDP between 1979 and 2013 has gone to the top one percent. Even Republicans are beginning to worry about this issue although they have yet to develop concrete proposals to address it.

Slow Growth in Incomes

Middle class incomes were growing slowly before the recession and have actually declined over the past decade.   In addition, according to the New York Times, the proportion of the population with incomes between $35,000 and $100,000 in inflation-adjusted terms fell from 53% in 1967 to 43% in 2013.  During the first four decades this was primarily because more people were moving into higher income groups, but more recently it was because they have moved down the ladder, not up.  One can define the middle class in many different ways or torture the data in various ways, but there is plenty of evidence that we have a problem.

What to Do

The most promising approach is what I call “the second earner solution.”  For many decades now, the labor force participation rate of prime age men has been falling while that of women has been rising.  The entry of so many women into the labor force was the major force propelling whatever growth in middle class incomes occurred up until about 2000. That growth in women’s work has now levelled off.  Getting it back on an upward track would do more than any policy I can think of to help the middle class.

Imagine a household with one earner making the average wage of today’s worker and spending full-time in the job market.  That household will have an income of around $34,000. But if he (or she) has a spouse making a similar amount, the household’s income will double to $68,000. That is why the President’s focus on a second-earner credit of $500, a tripling of the child care tax credit, expanding the Earned Income Tax Credit, and providing paid leave are so important. These policies are all pro-work and research shows they would increase employment.

No Marriage = No Second Earner

One problem, of course, is that fewer and fewer households contain two potential workers.  So it would also help to bring back marriage or at least its first cousin, a stable cohabiting relationship.  My ideas on this front are spelled out in my new book, Generation Unbound. In a nutshell, we need to empower women to not have children before they have found a committed partner with whom to raise children in a stable, two-parent family. Whatever the other benefits of two parents, they have twice as much time and potentially twice as much income.    

Other Needed Responses

Shouldn’t we also worry about the wages or the employment of men?  Of course.  But an increase in, say, the minimum wage or a better collective bargaining environment or more job training will have far smaller effects than “the second earner solution.”  In addition, the decline in male employment is related to still more difficult problems such as high rates of incarceration and the failure of men to take advantage of postsecondary education as much as women have. 

Still the two-earner solution should not be pursued in isolation. In the short-term, a stronger recovery from the recession is needed and in the longer-term, more effective investments in education, research, infrastructure, and in labor market institutions that produce more widely-shared growth, as argued by the Commission on Inclusive Prosperity. But do we really expect families to wait for these long-term policies to pay off?  It could be decades. 

In the meantime, the President’s proposals to make work more appealing to existing or potential second earners deserves more attention.  

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

Americans often think of our country as being one of great opportunity – where anyone can rise from very modest circumstances, if they work hard and make good choices. We believe that often remains true.

But, for children and youth growing up in poverty, such upward mobility in America is too rare. Indeed, just 30 percent of those growing up in poverty make it to middle class or higher as adults. Though we’ve made progress in reducing poverty over the past several decades, our poverty rates are still too high and our rate of economic advancement for poor children has been stuck for decades. That is an embarrassment for a nation that prides itself on everyone having a shot at the American Dream.

What can we do to reduce poverty and increase economic mobility? In our polarized and poisoned political atmosphere, it is hard to reach consensus on policy efforts. Both progressives and conservatives want lower poverty; but progressives want more public spending programs to improve opportunity and security for the poor, while conservatives generally argue for more responsibility from them before providing more help.

Even so, progressives and conservatives might not be as far apart as these stereotypes suggest. The two of us—one a conservative Republican and the other a progressive Democrat—were recently part of an ideologically balanced group of 15 scholars brought together by the American Enterprise Institute and the Brookings Institution. Our charge was to generate a report with policy proposals to reduce poverty and increase upward mobility. An additional goal was simply to see whether we could arrive at consensus among ourselves, and bridge the ideological divide that has so paralyzed our political leaders.

Together we decided that the most important issues facing poor Americans and their children are family, education and work. We had to listen to each other’s perspectives on these issues, and be open to others’ truths. We also agreed to be mindful of the research evidence on these topics. In the end, we managed to generate a set of policy proposals we all find compelling.

To begin with, the progressives among us had to acknowledge that marriage is a positive family outcome that reduces poverty and raises upward mobility in America. The evidence is clear: stable two-parent families have positive impacts on children’s success, and in America marriage is the strongest predictor of such stability. Therefore marriage should be promoted as the norm in America, along with responsible and delayed child-bearing.

At the same time, the conservatives among us had to acknowledge that investing more resources in the skills and employability of poor adults and children is crucial if we want them to have higher incomes over time. Indeed, stable families are hard to maintain when the parents – including both the custodial mothers and the (often) non-custodial fathers – struggle to maintain employment and earn enough to support their families. Investing in proven, cost-effective, education and training programs such as high-quality preschool and training for jobs in high-growth economic sectors can improve the skills and employability of kids from poor families and lift them out of poverty through work.

Another important compromise was that progressives acknowledged that expecting and even requiring adults on public assistance to work can reduce poverty, as we learned in the 1990s from welfare reform; programs today like Disability Insurance, among others, need reforms to encourage more work. And reforms that encourage innovation and accountability would make our public education programs for the poor more effective at all levels. We need more choice in public K-12 education (through charter schools) and a stronger emphasis on developing and retaining effective teachers, while basing our state subsidies to higher education institutions more heavily on graduation rates, employment, and earnings of their graduates.

Conservatives also had to acknowledge that requiring the poor to work only makes sense when work is available to them. In periods or places with weak labor markets, we might need to create jobs for some by subsidizing their employment in either the private or public sector (as we did during the Great Recession). We agreed that no one should be dropped from the benefit rolls unless they have been offered a suitable work activity and rejected it. And we also need to “make work pay” for those who remain unskilled or can find only low-wage jobs – by expanding the Earned Income Tax Credit (especially for adults without custody of children) and modestly raising the minimum wage.

We also all agreed on other topics. For instance, work-based learning—in the form of paid apprenticeships and other models of high-quality career and technical education—can play an important role in raising both skills and work experience among poor youth and adults.  And, if we raise public spending for the poor, we need to pay for it—and not increase federal deficits. We all agree that reducing certain tax deductions for high-income families and making our retirement programs more progressive are good ways to finance our proposals.

As our report demonstrates, it is possible for progressives and conservatives to bridge their differences and reach compromises to generate a set of policies that will reduce poverty and improve upward mobility. Can Congress and the President do the same?

Editor's Note: this piece first appeared in Inside Sources.

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• 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.

This post originally appeared on the TechTank blog.

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.