The debate over raising the federal minimum wage to $10.10 an hour from the current $7.25 heated up last week with the publication of a Congressional Budget Office study, which estimated that total employment would likely be reduced by “500,000 workers” if the hike were implemented.
While the CBO’s scenario made sense, a truly substantive debate about the minimum wage would start with the merits of abolishing it altogether, while seeking to help poor people through more direct means. Instead of decreeing that the unskilled can’t accept certain low-wage offers, thereby condemning many to joblessness, allow them to consider all of the potential options. But to the extent that low-paid workers are part of poor families—and many are not—help them in other ways.
Ironically, Nobel laureate economist Joseph Stiglitz, an advocate of hiking the minimum wage and critic of the CBO report, sensibly opined in his textbook Economics that “the minimum wage is not a good way of trying to deal with problems of poverty.” His point: Since many minimum-wage workers aren’t poor, this is yet another case of the government trying to solve a problem with a blunt instrument. The same CBO study he criticized bears him out, estimating minimum-wage workers’ median family incomes at $30,000, which shows that most live in families well above the poverty line, given that many have multiple workers.
BECAUSE ON-THE-JOB TRAINING is the most effective kind, the best way for people to better themselves materially is through working. A National Bureau of Economic Research study, “Minimum Wage Effects in the Longer Run,” concluded that the “longer-run effects” of “diminished training and skill acquisition” are “likely more significant” than the harm done by the minimum wage in the short run through reduced employment.
Jobs that provide even little or no wage—like unpaid internships—sometimes offer the best on-the-job training. A Wall Street Journal story early last year pointed out that Democratic politicians like Minnesota Sen. Al Franken “advocate…a higher wage floor,” except in their congressional offices, where all the internships are unpaid. Franken is quoted as pointing out that “interns will receive unique career development opportunities”—wise words, although honored in the breach when it comes to Franken’s support of wage floors for others.
Critics will respond that abolition of wage minimums will cause rampant exploitation. All-powerful employers will set the wages of the low-skilled at subsistence, while the prices they charge customers will be as high as ever. However, the critics might be surprised to learn that the share of hourly workers earning the federal minimum wage or less has fallen significantly over the long term. While the inflation-adjusted federal minimum in 1980 was about the same as in 2010, Bureau of Labor Statistics data show that the share of workers at the federal minimum or less has plummeted, from 15.1% in 1980 to 6% by 2010, and to 4.7% by 2012—a trend that tends to belie the idea of employer omnipotence.
Moreover, the proposed hike of nearly 40%, to $10.10 from $7.25, implies a current 40% exploitation rate. But if such huge margins really are being made from minimum-wage labor, one can only wonder why there’s no evidence that businesses paying the minimum are any more profitable than those paying much more. So maybe the conventional explanations do apply: Most businesses are price-takers, and most of us get paid according to the approximate value of our marketable skills.
Some workers have difficulty boosting those skills, however, even after years in the workplace. While BLS data show that about half of those earning the minimum or less are under 25, the other half includes people with “minimum-wage careers.” But the case for helping them is very different from saying that the government should continue to micromanage the labor markets.
A recent University of California, Berkeley, Labor Center study, “Fast Food, Poverty Wages,” shows that low-wage workers already get substantial government subsidies, such as food stamps and the earned income tax credit. The authors propose supplementing those programs with government-mandated wage hikes. But as conventional economics says, that would only worsen the poor’s plight.
Source: Gene Epstien
