SWARTHMORE, Pa. — Seemingly out of nowhere, a movement to raise the minimum wage has been gathering momentum. It’s about time. No one can live on $7.25 per hour. In real terms, the national minimum wage has dropped about 30 percent since its peak several decades ago. And yet there is a chorus of concern that raising the minimum wage, while it benefits some people, will be a disaster for others, because employers who rely on the minimum wage will find ways to eliminate jobs. The last thing you want to do in a time of high unemployment is threaten jobs. Research comparing adjacent states, one of which has raised its minimum wage, indicates that job loss from raised minimum wages is quite modest. Nonetheless, there is little doubt that if the minimum wage were raised enough, job loss would occur.
I don’t want to minimize the pain that lost jobs would produce, but I want to suggest, based on much research in the psychology of decision-making, that these immediate negative effects of minimum-wage increases would be temporary, and in the long term, raising the minimum wage would have benefits that dwarfed the costs. The research in question concerns the phenomenon of “anchoring.”
It has long been known that we evaluate virtually everything in comparison with something else. What makes a big car big is the existence of smaller cars. Same with a big house. Economist Robert Frank has pointed out that over the years the average size of an American house, in square feet, has doubled, even as family size has shrunk. But a big house isn’t very big if everyone else’s house is the same size. Our assessment of house size is anchored by the size of other people’s houses (though it could be anchored by the size of our previous house, at least temporarily).