Why Not $20 Minimum Wage?
by Donald Devine
Issue 223– March 13, 2013
Paul Krugman, the distinguished Nobel winner and New York Times lead economic columnist has come out as the number one supporter of President Barack Obama’s top priority of raising the minimum wage from $7.25 to $9 per hour.
“Mr. Obama’s wage proposal is good economics. It’s also good politics: a wage increase is supported by an overwhelming majority of voters, including a strong majority of self-identified Republican women (but not men). Yet G.O.P. leaders in Congress are opposed to any rise. Why? They say that they’re concerned about the people who might lose their jobs, never mind the evidence that this won’t actually happen. But this isn’t credible,” claimed the good progressive economist.
In the normal charitable approach to those who disagree with them taken by so many of our progressive intellectual superiors, he knows why conservatives are opposed: “today’s Republican leaders clearly feel disdain for low-wage workers.”
Why should Republican leaders be “concerned” about increasing the minimum wage? Why, it turns out that Krugman himself has warned about raising it too high: “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.”
Krugman explains his support for Obama’s plan by claiming the increase is too small to have any negative effect. The president’s official fact sheet on the matter phrases it this way: “A range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment, and that in fact employers may see a more stable workforce due to reduced turnover and increased productivity.” Notice that little bit about “modestly” raising the minimum and the “without measurably” increasing unemployment.
So what is the president’s “modest” rate? It is an incredible 24% increase. The day after the announcement fast-food stocks hit the skids, led by McDonalds. With such a large rise in the minimum, it was clear that such franchises would be hit hard. Who works in such franchisees and small businesses? What workers will be displaced because his or her contribution to the business is not worth the new minimum of $9? It is not rich progressive intellectuals. Unemployment is already 20.8% for young white males and 37.8% for young black men who tend to work in these positions. How high should the minimum go? Who will actually receive $1.75 in higher hourly wages? Why, union workers and government employees, both big progressive middle class constituencies.
Assuming a higher minimum income is the problem, the rational solution was offered by Milton Friedman long ago, a negative income tax to supplement low market wages with a government tax credit or tax “refund” if taxes are not owed. A modest Earned Income Tax Credit (EITC) was enacted by Gerald Ford in 1976 and vastly expanded by Ronald Reagan in 1986 and increased in every tax reform since. But since Republicans have been the main proponents, there is no political advantage for progressives to propose a workable solution. It is more fun to demagogue about higher minimums, which they know conservatives will oppose because it will cost small businesses their thin margin of success and they will look like Scrooges in the process.
More neutral economists such as the University of California’s David Neumark claim that 85% of the studies on minimum wage increases show a “negative employment effect on low-skilled workers.” Progressives cannot even truthfully argue the need for a $9 minimum since with the EITC the minimum is already higher than that at $5,000 per year, plus food stamps, Medicaid etc. In his State of the Union speech, the president proclaimed “in the wealthiest nation on Earth, no one who works full time should have to live in poverty” at $14,500 per year. But they actually already make $19,500 plus health and other benefits.
Why all of this progressive support for increasing a minimum wage even Krugman must concede could have “unintended consequences”? His allusion to the fact this is “good politics” lets the cat out of the bag. The average American has no idea what the EITC is and having a minimum wage sounds like a good idea to him without understanding the consequences. If progressive intellectuals and presidents supported the more rational EITC instead it would irritate the unions, which is not “good politics” for them. Even worse, some credit might be given to Republicans presidents, to say nothing of validating the thinking of conservatives such as Friedman and Reagan, which certainly would be unthinkable for them.
Donald Devine, the editor of ConservativeBattleline On Line, was the director of the U.S. Office of Personnel Management from 1981-1985 under Ronald Reagan and is Senior Scholar at The Fund for American Studies.