Thursday, February 14, 2013

The Minimum Wage: Once More with Feeling!

In his State of the Union Address, President Obama again called for raising the minimum wage--this time to $9 an hour! This flies in the face of all economic wisdom. The last think we want to do in a time of high unemployment is to make it more expensive to hire someone. 

As I explain in Chapter 15 of my book, a minimum wage above the market wage results in unemployment, increases labor costs, keeps the lowest-skilled workers out of the labor force, putting them on a lower income trajectory, reduces societal wealth by encouraging entrepreneurs to use an inefficient combination of factors of production, causing needless waste and decreases in overall production. That is no way to reduce the plight of the poor.

Heather Boushey concedes the theoretical argument, but claims the theory does not hold up in practice. Boushey sees the minimum wage increase as a great way to help poor people and stimulate the economy to boot. Economists Richard Vedder and Lowell Gallaway, who have spent much of their careers examining the economics of labor markets have come to, shall we say, a different conclusion. I highly recommend Vedder and Gallaway's study "Does the Minimum Wage Reduce Poverty?" Both economic theory and history answer, in a word, no!

No comments:

Post a Comment