September 28, 2006
The Minimum Wage, Continued Posted by Fredric Smoler at 06:30 PM EST John Steele Gordon writes that “Even in this all-too-imperfect world, a minimum wage is a lousy way to help those who really need the help, mainly because it doesn’t help them very much if at all.” But if minimum wages help very needy people at all, that is already a blow to the empire of theory, because theory maintains that minimum wages increase unemployment, especially among the unskilled. I think this claim is the source of any moral authority that the argument against the minimum wage can command, and there is some recent evidence that under some conditions, minimum wages do help very needy people, at least in rich countries like the United States. For example one 1999 study found that federal minimum-wage increases in the 1990s did reduce U.S. poverty rates (John Addison and McKinley Blackburn, “Minimum Wages and Poverty,” in Industrial and Labor Relations Review, Vol. 53, No. 3). There are other studies, on both side of the question, but the case against a minimum wage in, say, Sri Lanka, is generally thought a lot stronger than the case against a modest increase here and now. In a poor country, minimum wages reduce the ability to make the most of what may be the sole competitive advantage, cheap labor. But Josh Zeitz was writing about our economy. I grant Mr. Gordon’s argument that isolating the weight of one factor is very hard to do in something as complicated as the U.S. economy—but that does not mean that people shouldn’t try. Mr. Gordon states that he cannot speak to the quality of the study I cited. If it is any help, the last time I checked, David Card, who in 1995 won the John Bates Clark medal (the second most prestigious award in economics, the most prestigious being the Nobel Prize), was tenured at Berkeley, Alan Kreuger at Princeton. Neither university’s economics department is a hotbed of Bolshevism, and at least one Nobel laureate in economics has praised this work. That does not mean that the study is beyond challenge, but these are not charlatans. As it happens, while most American economists continue to have theoretical objections to the minimum wage, fewer are convinced of its inevitable evils than was once the case. A 2003 survey of academic economists (“Consensus Among Economists: Revisited,” in Journal of Economic Review, Vol. 34, No. 4) showed that 46 percent of them then agreed that a minimum wage increased unemployment among young and unskilled workers, and that an additional 28 percent were in partial agreement with that dictum of theory. But in 1990 it seems that 63 percent of academic economists thought this, while another 19.5 percent partially agreed with it. The number of academic economists who think this proposition false has increased rather dramatically (from 17.5 percent to 27 percent). Academic economists tend to agree that earned income tax credits are preferable to minimum wages, and Mr. Gordon seems to share this view. My sense is that while there are some problems with earned income tax credits—very poor people are bad at filing the requisite forms, and the credit arrives only once a year, which is a significant practical difficulty—EITCs would in an ideal world be better public policy. But this is not an ideal world. There is significant political momentum behind the drive to raise the minimum wage, and politics is the art of the possible. If you want to help the poorest working Americans, raising the minimum wage by a dollar or two may well be the likeliest way to do that any time soon.
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