In June I posted a paper I'd written called “There’s a Monster in My Closet!”: The Minimum Wage Boogeyman. Now that the July minimum wage increase has gone through, it seemed appropriate to revisit the topic in light of the new unemployment numbers that came out immediately following the increase. Unlike my last post on the topic, this isn't a wonkish, technical paper; just my own take on the meaning of the numbers, and what it means for the minimum wage argument overall.
The minimum wage is and has always been a political football, pulled out to play whenever politicians need to drum up support for, or action against, their particular constituency’s goals. For liberals, the minimum wage is a tool to appeal to the masses, many of whom are low-income or impoverished. They see a minimum wage as a way to lift people out of poverty, to even the playing field, to give everyone a fair shake, and to reduce income inequality and increase fairness. For conservatives, the minimum wage is a foil to drum up anger from their supporters, most often businesses. They see it as an artificial price floor, which drives good businesses out of the labor market by raising payroll costs so much they can’t hire new workers, or must let some workers go to stay in business, and think that the open market is the best way to ensure wages are fair and full employment is maintained.
I see both arguments, and I cannot help but be more attracted to the argument of the liberals. The conservative argument not only lacks a sense of basic humanity towards others (as do quite a few other conservative arguments about economic matters), but from a purely empirical standpoint, the argument of the conservatives that a minimum wage will kill jobs and is sure to drive some businesses to ruin simply doesn’t pass muster; historically, neither is true.
From the groundbreaking study by Card and Krueger in the mid-90’s, to more recent studies and discussions by Shipler, Waltman, Ehrenreich, and many others, the evidence to support the idea that the minimum wage is a job-killer simply doesn’t exist. The conservatives make a good, common-sense argument; it makes sense when you think about it. The problem is, something is being left out of their argument, because that’s just not what happens when minimum wage increases occur.
Take for instance the most recent jobs report. On Friday, July 31, 2009 the minimum wage increased by another 25 cents. By conservative standards, businesses would have been cutting back employment drastically in anticipation of such a sharp increase. Business planners large and small would have seen this coming months ago, and kept their workforces intact until the last possible minute, then dropped the least productive (ie. minimum wage earners) from the roles. Instead, after months of increasing unemployment, July saw the first drop in unemployment in months, by 0.1%. The studies by Card and Krueger show this same kind of correlation (or perhaps it would be better to say, lack of correlation). So where is the conservative argument in light of this evidence? It seems that the argument is at best microeconomic in scope (which makes it an excellent tool to drum up votes and campaign contributions from frightened small-business owners) but on the macroeconomic scale any actual job losses are tamped out in aggregate. So the conservative argument appears to be so much hot air.
What of the liberal argument, then? Simply because the conservative argument is demonstrably wrong, or at best, inaccurate, does not mean the liberal argument is therefore correct. However, it has a lot more merit than the conservative one. Indeed, having a minimum wage does ensure a measure of fairness, in that there is no chance that someone working at a job will be paid less than this minimum; also, it assists those who would otherwise fall into abject poverty avoid such, but only barely. However, the minimum wage has some shortfalls, often caused by conservative efforts to limit or abolish it, which minimize its ability to address the income inequality issue in and of itself.
In my opinion, until the minimum wage is (a) raised to a point where a two-adult family with two children, where the adults both make the minimum wage, can raise their family without additional government assistance in the form of Food Stamps or other welfare, and (b) when it is tied to the periodic rate of inflation, say on an annual or semi-annual basis, then the minimum wage is arguably ineffective at combating poverty and income inequality, and thus, the poor shall always remain with us.
References:
Card, David E. and Alan B. Krueger. (1995). Myth and measurement: the new economics of the minimum wage. Princeton, NJ: Princeton University Press.
Cline, John S. (2009, June 14). “There’s a Monster in My Closet!”: The Minimum Wage Boogeyman. Author's blog post, at http://lovelifelightlaughter.blogspot.com/2009/06/theres-monster-in-my-closet-minimum.html
Ehrenreich, Barbara. (2001). Nickel and dimed: on (not) getting by in America. New York, NY: Henry Hold and Company.
Shipler, David K. (2004). The working poor: America's forgotten workers. New York, NY: Alfred A. Knopf.
Waltman, Jerold L. (2000). The politics of the minimum wage. Board of Trustees of the University of Illinois. Chicago, IL: University of Illinois Press.
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