The federal minimum wage is set to increase this Friday. Just in the nick of time, since the last increase (a year ago) really paid off in terms of stimulating the economy.
I just heard a talking head cite a Chicago Fed study that said that minimum wage increases stimulate the economy. Not only that, but they get the people with the lowest wages to spend more (and this was presented as a good thing!). Do people who support minimum wage regulation really believe that getting the nation’s poorest to spend more is a good thing? Even if the laws of economics were suspended and minimum wage hikes were good for the economy as a whole, this seems counterproductive to the intentions of the bleeding heart. The new minimum wage translates to $14,500/yr, so I’m guessing that a minimum wage worker is most concerned about very basic necessities and, if society was concerned about such folks, they should hope that these workers save for the inevitable rainy day, i.e., not buy a big screen TV.
I was encouraged to look up the Chicago Fed study, and came across two articles that are completely upside-down in their economic reasoning. In this one, I’m just going to comment on the comments. One reader points out the effect that minimum wage had on blacks in the 1930’s (I don’t know if this is true, but the logic is sound). A respondent who works for a think tank counters that minimum wage laws apply to everyone, so it does not differentially affect different groups. Nonsense! The people who are directly affected are those whose earnings are below the new minimum wage. Employers must choose to lose money in the increased costs of keeping these workers employed, or to cut hours or jobs to maintain lower costs. Certain groups empirically are over-represented at these marginal wages and, historically, blacks in America are one of these groups (especially, I would bet, in the 1930’s).
I love this second article for the closing paragraph, which is where minimum wage proponents shoot themselves in the foot:
Getting $80 billion in additional spending from minimum wage increases would mean boosting pay way more than $1, which could cause all sorts of unexpected side effects not limited to higher unemployment in the economy.
Where exactly is the imaginary line the separates “minimum wage increases are good” from “too drastic an increase is bad?” I won’t hold my breath for an answer.
10:11 am on July 20, 2009
