Should President Obama lower the minimum wage to create jobs and stimulate the economy?
Charles Lane thinks so, and his op-ed in The Washington Post has reignited talk about it. Lowering the minimum wage is one of three measures--the other two involve the sugar and construction industries--Lane proposes to "
stop doing things that
destroy jobs" instead of actively trying to create them. Here's his rationale:
In 2007, Congress enacted a three-step increase in the minimum
wage, which was then $5.15 per hour. The final installment took effect
in July, raising the rate to $7.25 per hour. In the meantime,
unemployment climbed from 4.7 percent to 9.5 percent.
I am not
saying that the minimum wage increase caused this; far from it. But
study after study has shown that this supposed benefit to the poor
prices low-skilled workers out of entry-level jobs. It was unwise to
keep raising the cost of hiring them in a recession.
So is this the solution the country has been waiting for? Some at Fox News
have latched onto the notion, but left-leaning bloggers and pundits, predictably, say the idea's bogus. Here are their counterarguments:
- How to Write Like Charles Lane Blogger Jesse Taylor calls the studies Lane cites "garbage," points to others contradicting the minimum wage-employment connection, and says that "what Lane is actually proposing is that we create hundreds
of thousands of terrible new low-paying jobs to artificially lower the
unemployment rate." He parodies Lane's rhetorical style:
You know, I generally like to start off my arguments by linking
together two pieces of almost entirely unrelated information. Charles
Lane works for the Washington Post. There were dozens of unsolved
murders in Washington, D.C. last year. I'm not saying Charles Lane is
a predatorial super-killer; far from it ... But Charles Lane really likes taking college students into alleys and
savagely beating them with 2 x 4s. It is unwise for the Washington
Post to continue to hire this man.
- Professional Economist Calling Foul Economic heavyweight and progressive idol Paul Krugman explains that the idea behind the minimum wage-employment connection is that "if some subset of the work force accepts lower wages, it can gain jobs.
If workers in the widget industry take a pay cut, this will lead to
lower prices of widgets relative to other things, so people will buy
more widgets, hence more employment." But it's a little more complicated if you cut wages across the board, particularly "if we're in a liquidity trap, with short-run interest rates at zero." Then "wage cuts wage cuts do nothing to increase demand," and in fact contract it by "rais[ing] the real value of debt." Cutting wages could also raise real interest rates, he argues, ,"which is even more contractionary."
- Take from Poor, Give to Rich Jeffrey Joseph at Buzzflash points out that some subset of Fox News pundits have now said "a decrease in minimum wage somehow creates jobs" while arguing against federal limits on CEO compensation for TARP-receiving banks, "implying the government sought to regulate all pay." He's not impressed: "By that logic, a recession demands that the poor earn less but that the
CEOs more directly responsible for the downturn deserve bonuses."
- Studies Contradict Lane At left-leaning Think Progress, Pat Garofalo says "almost all of the economic research on the subject shows that the minimum wage has little to no effect on employment." Garofalo points to one particularly damning study, and also writes that the "brand new information" cited by Fox "is a study published last year by David Neumark of the University of California and William Wascher of the Federal Reserve that found that increasing the minimum wage may affect, by Neumark's own admission, a 'small number' of workers."
