A minimal gesture Truth be told, raising the minimum wage will have a minimum impact on the working poor We must look elsewhere for genuine economic progress
Kelly, Kevin
Kevin Kelly A MINIMAL GESTURE The politics of wage hikes Ho read the news recently, you'd have thought raising the minimum wage was the most important economic issue facing the country. Official...
...But neither will poverty...
...If the Democrats have a Laffer Curve-that silly 1980s Republican economic theory sketched out on a cocktail napkin that postulated tax cuts actually increase federal revenues- it's studies that claim boosting the wage floor will increase employment...
...Economist David Neumark of Michigan State University, for instance, has found that total employment consistently dropped by 1 percent to 2 percent for every 10-percent rise in the minimum...
...Kevin Kelly, a former reporter for Business Week, runs a 100-em-ployee manufacturing company in Union City, California...
...For boosting the minimum wage will impact only the tiniest portion (2.5 percent) of the U.S...
...Certainly a case can be made that minimum-wage workers deserve a raise...
...a man who has rarely tried to do anything helpful for the poor...
...Official Washington took all the energy Republican presidential candidate Patrick Buchanan had generated around falling wages and rising income inequality and focused it on a debate about boosting the nation's baseline wage rate from $4.25 an hour to $5.15 over the next two years...
...The heated rhetoric leapt from the op-ed pages, but real economic analysis of the proposed 90-cent increase was rare indeed...
...In the end, they should have passed the increase and gotten on with it...
...Democrats claimed that opposition to the increase was yet another proof that a hard heart lies at the core of the Republican revolution, and the GOP pointed to Democratic support for the raise as yet another sign of the Democrats' failure to understand market economics...
...In fact, the very House Republicans who wanted to block an increase in the minimum spent most of last year trying to gut one of the few antipoverty programs that really works- the earned-income tax credit that protects the income of the working poor from taxation...
...Unfortunately, politically, the opposition is being directed by the likes of Congressman Dick Armey (R-Tex...
...Both sides spoke some truth...
...As Fed Chairman Alan Greenspan told Congress, "I think the evidence is persuasive" that increasing the minimum begets rising unemployment...
...But many supporters of the minimum-wage increase don't seem to mind believing they do...
...Unfortunately the economic case isn't that straightforward...
...It's no wonder well-meaning people everywhere distrust the notion that there's a tradeoff for raising the minimum...
...Instead, it is vastly more likely that at least some of the working poor will find themselves on the street after an increase...
...And the phantoms the country hoped to avoid by concentrating on the issue will reemerge, despite the best efforts to deny their existence...
...Except for a few commentators like Peter G. Peterson (see, Atlantic Monthly, May 1996), the Social Security bogey and concerns about whopping federal deficits-both of which could cripple the economy early in the next century-have nearly disappeared from the political radar screen...
...But both sides would have rather called each other names over this small issue than grapple with the larger ones...
...Those who oppose the increase point out real issues...
...Let's say this: The world as we know it won't end because Congress hikes the minimum wage...
...work force...
...But what about all those studies that claim otherwise...
...The issue has been politicized by both sides...
...Demand curves don't slope that way...
...Between 1978 and today, the purchasing power of the minimum wage declined 31 percent...
...He claims that when New Jersey increased its minimum wage in 1992-from $4.25 an hour to $5.05-employment in the fast-food industry actually rose slightly for teen-agers and no job loss occurred...
...Mention this study among serious economists of both the left and right and the hooting begins...
...But it may be that the saddest commentary on 1990s-America is that increasing the minimum wage is what now passes for an anti-poverty program...
...Card himself has never offered a plausible explanation...
...Few, if any, accept its findings...
...The debate was an unfortunate sideshow that crowded out far more substantive economic issues...
...Meanwhile, as politicians dickered, overall wages remained stagnant, the income gap widened, Americans continued to worry about being downsized, and Wall Street and corporations gave them little reason not to fret...
...Instead, we were left trying to parse a dizzying array of studies which conclude alternately that a minimum-wage increase would be the best thing since manna, or that it would precipitate the worst economic train wreck since the Depression...
...In fact, to have the same purchasing power it had in the 1970s, the minimum would have to jump to $5.42-an increase no one was close to proposing...
...An Urban Institute study argued that boosting the minimum wage would shove at least 200,000 families above the poverty line...
...The study they most like to trot out is one by Princeton University economist David Card...
...The economy can create 400,000 new jobs in a good month, and putting more money in the pockets of people who work hard for a living can't be all bad...
...For when you increase wages, employers will find some way to reduce the impact on their profits by getting rid of some workers...
...Sounds good...
...That's because people making $8,840 a year would suddenly be bringing home $10,712...
...That's not plausible," says Stanford University economist (and Democrat) Paul Krugman...
...Before the debate, the Federal Reserve Board estimated that a ninety-cent increase would reduce overall employment by 400,000 jobs, and that about half of those who lost their jobs would not find new ones...
Vol. 123 • June 1996 • No. 11
