11 June 2008


I was listening to Glenn Beck today on the way to work and was reminded of something that happened last year.

The Democrats took control of Congress in 2006, and the one thing they have actually accomplished since then (the only thing?) was raising the minimum wage. Of course, the New York Times hailed it as "a major victory to low-income workers."

Um, maybe not.

Glenn, in the link above, argues that raising the minimum wage merely causes employers to cut these minimum-wage jobs rather than pay the higher rate.

So in essence, the wage hike hurts those making the minimum wage most.


As Glenn concludes:

This is from the University of California. An economist out there found the 10% minimum wage hike cuts employment of young and unskilled workers by 8.5%. He says in the last 11 months alone, the U.S. minimum wage has increased by more than twice that amount. So if we are expecting a 20% minimum wage hike, we can expect a 17% drop in employment in uneducated workers. It's crazy.

Bingo. It's the problem of theory vs. reality, as applied by politicians. Thanks Congress!

But of course, we all know unemployment is rising due to President Bush's policies. Or Iraq somehow.


Anonymous said...

You said before the unemployment rate wasn't that bad--that 5% was pretty good. So then what difference does the min. wage make?

Brandon said...

I personally don't think 5% unemployment is that bad, correct. But it is rising, and has been for a while. Exactly as many predicted it would if the minimum wage was raised.

Matty Gibb said...

There are a lot of things wrong with Beck's interpretation of that analysis, but that is the basic economic theory--that a price floor in a market (in this case, the labor market) could throw the market off of equilibrium and cause less of the good to be consumed.

But to answer anonymous, the importance of the policy implication here is that the politicians are trying to help minimum-wage workers by raising their wage, but the policy could hurt some of them if it results in them being laid off. So the importance is not the impact on the overall unemployment rate, it's the impact on the minimum-wage sector of the labor market.

Brandon said...

I believe that's exactly what Glenn said, if you clicked the link.

And a spike in unemployment for low-wage workers affects the numbers for overall unemployment, n'est-ce pas?

Matty Gibb said...

It could, or it could not. Lots of low-wage workers are high school kids who don't really have to work anyway. If getting laid off causes them to just quit bothering to work, then they aren't considered unemployed. Only people who are actively looking for work and unable to find it are considered to be unemployed. And the number of jobs cut because of the wage increase could also be so small that it would not move the reported unemployment rate. Glen even admits in his commentary that the lost jobs are mostly those of high-school kids working for the summer. That's not a major crisis.

There's no way you can form policies that affect millions of people without affecting some negatively and some positively. In this case, the majority of people with min-wage jobs keep their job and get more money, which is good for them. A small minority may lose their jobs, or may get their hours cut back (more likely), so it's bad for them. You have to balance the two effects when you decide about a policy, you can't just say that it will hurt some people so we won't do it. Nothing would ever get done in that case.