Now that Baltimore’s tragic homicide rate has again received unwanted national attention, we are sure to hear renewed calls to treat the “root causes” of crime. This will undoubtedly include demands that Maryland legislators quickly approve a hike in the state’s minimum wage to $15.
The idea that mandating higher wages for low-skilled jobs will cut crime got a boost from President Barack Obama’s Council of Economic Advisers back in 2016. In a wide-ranging report, they suggested that “if legitimate employment opportunities with sufficient wages are available, then the necessity and relative attractiveness of criminal activity will decline.” Some “back-of-the-envelope” calculations (their words) implied that a $12 minimum wage might cut the crime rate 3-5 percent.
Unfortunately, the front of the envelope says that minimum wage hikes might make the crime problem worse rather than better. A recent report distributed by the National Bureau of Economic Research, one of the world’s most prestigious research outlets, examined minimum wage hikes at the federal, state and local levels over 1998-2016, and concluded that every 10 percent hike in the minimum wage increased property crime arrests for 16-24 year-olds by 2 percent. The authors found no significant effects — favorable or unfavorable — of minimum wage hikes on violent or drug crime rates.
If this study stands up to careful scrutiny, it suggests Maryland’s contemplated 49 percent hike in the minimum wage (from its current $10.10) could lead to a 10 percent increase in youth property crime arrests. In other words, we might be about to make the “mass incarceration” problem worse while doing nothing to reduce the city’s homicide rate.
The stumbling block here, to go back to the CEA’s hopeful suggestion, is that employment opportunities must truly be available for this particular treatment of the root causes of crime to work. The NBER researchers found that the opposite is true, with crime increases driven by the adverse effects of minimum wage hikes on hiring and hours worked.
Of course, the NBER researchers might be wrong. They clearly made one unforced error: They accepted grant funding from the conservative Koch Foundation and a think tank underwritten by businesses harmed by minimum wage hikes. Though the authors are well-regarded academics working at the University of Connecticut and San Diego State University, that money trail means that their research is going to be dismissed by many — in much the same way that papers finding no downside of the “Fight for $15” have credibility issues when funded by labor unions and progressive donors.
Perhaps, then, policy makers should act like physicians facing a complicated case and “first, do no harm.” Even President Obama’s former CEA chair, the late Alan Krueger — who kicked off the campaign for higher minimum wages with an influential paper suggesting that modest hikes might have little or no damaging effects on job creation or hours worked — once warned that a hike to $15 risks “undesirable and unintended consequences.”
Moreover, it is important to note that these risks can be avoided entirely while simultaneously enhancing the incomes of low-skilled workers (and therefore reducing the “attractiveness of criminal activity”) by simply expanding the Earned Income Credit.
Mandating significant wage hikes invites major job losses through automation or the exporting of economic activity to lower-cost jurisdictions — a key issue in Maryland, where so many businesses are within a short drive of Virginia, Pennsylvania or Delaware. The EIC, by contrast, raises the after-tax earnings of workers at the entry- or low-skill levels without risking that a legislatively-set wage rate will exceed the value of those workers’ productivity and lead to layoffs or reduced hours.
What’s more, steep minimum wage hikes will deliver smaller net income increases than promised, even to those lucky enough to keep their jobs. At a $15 wage, workers now receiving the EIC will see that benefit reduced and their payroll taxes rise; working mothers with children will lose much of their Supplemental Nutritional Assistance Program benefits, health care subsidies and Section 8 housing aid. The overall effect of this well-meaning attempt to assure “sufficient wages” to the working poor is unclear, at best.
The “Fight for $15” is destined to disappoint: It will make Baltimore neither more prosperous nor more safe. An economic treatment of the root causes of Baltimore’s crime epidemic should focus on an expansion of the EIC and policies to attract rather than repel investment.
Stephen J.K. Walters is a (soon-to-retire) professor of economics at Loyola University Maryland, and the author of “Boom Towns: Restoring the Urban American Dream.” His email is email@example.com.