There are few policy prescriptions dearer to the hearts of liberals than the minimum wage. In theory it provides a “living wage” to those at the bottom of the economic pyramid and what could be wrong with that? Indeed, argue against it and the average liberal will look at you as though you were Mr. Bumble dismissing Oliver Twist’s request for some more porridge.
The concept dates back to the 1890’s when it was first used in Australia and New Zealand. American states first set minimum wage requirements in 1912, although the Supreme Court ruled them unconstitutional as an impairment of contract. The federal minimum wage appeared in 1938 and has been raised erratically ever since to keep pace with inflation. The New York Times on Sunday had a lead editorial calling for a raise in the minimum wage from $7.25 to $9.00 an hour, a whopping 24 percent increase. Paul Krugman chimed in the same day with a theoretical justification. He admits that it runs contrary to economic theory:
The question we need to ask is: Would this be good policy? And the answer, perhaps surprisingly, is a clear yes. Why “surprisingly”? Well, Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook — mine included — lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems. But that’s not what’s on the table. And there are strong reasons to believe that the kind of minimum wage increase the president is proposing would have overwhelmingly positive effects.
In other words, Professor Krugman is at odds with columnist Krugman, hardly for the first time.
But is it good public policy? I side with Professor Krugman.
Like rent control, the minimum wage is price fixing, setting the minimum price at which labor can be hired, just as rent control sets the maximum price at which living space can be rented. Both of these ideas are rooted in a pernicious medieval notion called the just price, the idea that everything has a proper price, one at harmony with the universe. But there is no more any such thing as a just price than there is a just temperature for a Sunday afternoon in April. Both result from the interaction of natural forces, with a result that we can like or dislike but have to accept.
Labor is a commodity, just like anything else bought and sold in the marketplace, from legal services to pork bellies. And economies consist of the exchange of commodities to the benefit of both parties. So if the employer cannot receive from an unskilled employee work worth what he is required to be paid, the employer will not hire him. No one, after all, willingly trades a ten-dollar bill for a five.
Very few minimum-wage workers are heads of household. Most are teenagers just entering the jobs market or earning extra money after school. And teenage unemployment right now is horrendous, 23.4 percent. To raise the minimum wage by 24 percent is to guarantee that that rate will rise.
So why do liberal politicians like the minimum wage concept so much? There are two basic reasons. One is that many labor union contracts specify wage rates that are multiples of the minimum wage. Raise the latter, and you raise the former, much to the benefit of the unions that so generously fund Democratic candidates. The other is that the minimum wage is a benefit that politicians don’t have to pay for. Essentially, the politician gets to say, “See A over here? He needs help. You, B, pay him more money.” He then points to himself and says, “And you, A, don’t forget where the money came from on Election Day.”
Is there a better solution? Sure, there’s one already in place, the Earned Income Tax Credit. It is a refundable tax credit that is paid to low wage individual workers (principally those with qualifying children), raising their living standard by multiplying their earned income. Employers get to pay the market wage for labor, workers get to learn skills and experience the dignity of work. The problem, of course, is that the EITC adds to total federal outlays and thus the deficit.
Paul Krugman is a buffoon, a socialist that thinks we should spend like drunken socialist during a time of economic hard times. This is the same buffoon that thinks Obama isn’t left enough or hasn’t gone far enough or isn’t extreme enough.
"The problem, of course, is that the EITC adds to total federal outlays and thus the deficit." Not necessarily. I know many small business owners who would hire more people if they could at rates lower than the minimum wage. Most of these are already receiving some forms of public assistance. So by allowing small business to put these individuals to work, the deficit could be reduced, even in the short run. In the long run, there would be lower inflation and a more competitive economy. The minimum wage works against those it is intended to help. n
As long as we import cheap labor from abroad, or let it infiltrate, we are conniving with market forces to keep wages low. Put a halt to immigration and watch wages increase.
I could suggest in true Krugman fashion that the minwage stays where it is and….of course the Federal government simply gives everyone employed a stipend to bring them up to any arbitrary minimum. As long as the Federal government is spending vast sums of money even if it's spent to hire people to set money on fire in the street, that's a good and noble thing to Krugman.
For too long rich conservatives have plugged the notion that what is good for them is also good for those at the bottom. It is not axiomatic, as they would have us to believe, that the unfettered marketplace is the "natural" way—even Adam Smith himself talks about regulating the system. But of course nobody but conservatives believes this notion anymore. Nowadays, Republicans can get elected only by allying themselves with the malcontents of society: the religious fanatics, the anti birth-control crowd, the gun nuts, the anti-gay wings of American society. nIgnorance is their tool of choice. For example, the concept of the fertilized egg being a person is erroneous. By nature, only 1/3 of fertilized eggs make it to birth. If these folks want to define a beatific moment when "personhood" begins, they should at least start with implantation of the fertilized egg into the uterine lining. If an un-implanted fertilized egg is the start of a person, then we need MAJOR heroic interventions to save those 2/3 of "persons" who will die after the egg gets fertilized.
"Labor is a commodity, just like anything else bought and sold" nNo, I do not believe that. A human being is not the same as a pork belly. nFurther, the author Mr Gordon fails to explain the effect of a minimum wage in any concrete situation. He is vague. "So if the employer cannot receive from an unskilled …" So? This is so vague to be laughable. nNext time, try to be specific. n nIn my restaurant, I employ 30 people, cooks, waiters, dishwashers. I have five cooks, three are well skilled and experienced, two are new. The dishwashers come and go. I profit, on average, five dollars per meal served. If the minimum wage were raised 25%, that would lower my profit to three dollars per meal served. Perhaps, unless I raised prices. As would my competition. A very small percentage of my customers would eat elsewhere, if i did. All in all, the costs would be passed to my customers. n nI would like to see, as a reader, a more specific treatment of the subject, not just some vague speculation. n
The piece is on minimum wage, and you wander into the abortion issue. Amazing. As for society's malcontents – religious fanatics fit the bill, but not environmental whack jobs? Anti-birth control crowd (really, how many people fall into that category?), but not the abortion on demand crowd? Gun nuts, but not anti-GM food nuts? I mean, really. Just because you think it doesn't make it reality. nNow, about minimum wage…
EITC increases as poor people have more kids? Talk about a perverse incentive.
I'm with Milton Friedman and Thomas Sowell on this topic. Minimum wage is a horrible idea. It kills jobs, doesn't make anything better. You heard in San Francisco you can't buy a 5 dollar foot long sub at Subway because minimum wage in San Fran is already 10.25 an hour. Remember the teenagers that dried off your car with towels after going thru the car wash. Don't see them anymore. Minimum wage prices out 1st time jobs. They go bye bye. Sorry but some jobs are not fitted for 9 bucks an hour. n nIf the only thing keeping poor people from being poor is money, then we why not set the minimum wage to 30 dollars an hour. Then none of us will be poor. Problem solved. I don't get how Krugman is suppose to be this smart economist and everything he wants to do, most of us just see as completely wrong!
Right, Mike, I am all over the map, because that's where the Republican party, including the Romney campaign, is. Republicans will cynically adopt any nut-ball's agenda, just to disguise their own, which is to make the rich richer. As if Reagan or Cheney ever gave a rat's ass about abortion! nMarco Rubio is 1 of the most shameless: for 20 minutes he tells u how he went to college on grants, and his parents live on social security and medicare. Then, for the next 10, he perversely says that's WHY we should gut student aid and medicare. Huh? nWell, the Hispanics did not buy THIS Trojan horse (Rubio) enough to vote Romney. McCain and Bush Jr. each got double Romney's Hispanic vote.
"Labor is a commodity." n nNot in New York State, it isn't. Not constitutionally, that is. Article I (Bill of Rights), Section 17 of the New York State Constitution: n n"§17.Labor of human beings is not a commodity nor an article of commerce and shall never be so considered or construed. n n"No laborer, worker or mechanic, in the employ of a contractor or sub-contractor engaged in the performance of any public work, shall be permitted to work more than eight hours in any day or more than five days in any week, except in cases of extraordinary emergency; nor shall he or she be paid less than the rate of wages prevailing in the same trade or occupation in the locality within the state where such public work is to be situated, erected or used. n n"Employees shall have the right to organize and to bargain collectively through representatives of their own choosing." n nThen follows this note: (New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938; amended by vote of the people November 6, 2001.) n nSo now you see where it comes from.