In the first item that caught my eye this morning Robert Samuelson writes about the movement to increase the minimum wage. After noting that the poor, by and large, are unemployed and, consequently, their situation can’t be improved by increasing the minimum wage, a sizeable proportion of those earning the minimum wage don’t live in poor families, and the consequences of increasing the minimum wage on jobs is hard to measure, he concludes:
In the short run, even sizable increases in mandated wages may have moderate effects on employment, because businesses won’t abandon their investments in existing operations. But companies that think themselves condemned to losses or meager profits won’t expand. Not surprisingly, a study by two economists at Texas A&M finds that the minimum wage’s biggest adverse effects are on future job growth, not current employment. To this defect must be added another: An excessively high minimum will attract more skilled workers, denying the less skilled an entry point to work and on-the-job training.
The minimum wage seems a shortcut to social justice. It isn’t.
The intended beneficial effect of increasing the minimum wage is ensuring that everyone who works full time can earn a living wage. The prospective unintended secondary effects of increasing the minimum wage include:
- It may reduce the number of jobs. But it may not. The results are obscure.
- It will probably reduce the rate of job growth.
- It will incentivize a black market in sub-minimum wage jobs.
- It may grant a raise to individuals already working for more than minimum wage but working under minimum wage multiple contracts, proliferating the secondary effects of increasing the minimum wage far beyond entry level jobs.
and, as noted by Samuelson, it won’t solve the problems of the poor. There are other solutions, some of which would help the poor, including:
- A negative income tax.
- Subsidized employment programs.
- Reducing the barriers to entry for a wide variety of businesses.
- Reducing the subsidies being granted to the largest businesses.
These, of course, would have unintended secondary effects of their own.
In the final analysis IMO the discussion of an increase in the minimum wage is a red herring. We aren’t producing enough jobs at any rate of compensation and to the extent that increasing the minimum wage would reduce the rate of job growth it would actually be counter-productive. Focus on more jobs.