While I agree with the premise of a recent New York Times editorial—that federal government and Federal Reserve policies should do more to promote wage growth:
Cutting taxes on the wealthy, especially by rescinding health insurance for millions, and deregulating Wall Street — the centerpieces of the Trump agenda — help those who need no help while depriving the government of resources that could help create well-paying jobs and bolster people’s incomes. Such trickle-down economics encourages business polices that make the work force less secure.
At the same time, the Federal Reserve, apparently concluding that the economy is at or near “full employment,” appears ready to cool it down with still higher interest rates. The thought is that the jobless rate, 4.3 percent, cannot go any lower without causing excessive inflation — even though economic growth has been modest, job growth has slowed in recent months, and inflation remains below the Fed’s 2 percent target.
The upshot is that both fiscal and monetary policy are moving in ways to inhibit wage growth when it is desperately needed.
there are issues with the means that they advocate and with their criticism of the Federal Reserve in particular. The Federal Reserve has multiple mandates but raising wages isn’t one of them. What is generally called “the dual mandate” consists of maintaining stable prices and maximizing employment. Those objectives may be at odds but aren’t necessarily so.
Wages are the price of labor. Giving the Fed the mandate of raising wages would give the Fed the directly contradictory objectives of maintaining stable wage rates and increasing wage rates. I think there are very good arguments for changing the Fed’s mandate but that’s probably not the direction in which the mandate should be changed. For example, I wish the Fed would devote much, much more attention to regulating banks, something outside the dual mandate but part of its responsibilities nonetheless, than it does now. If the Fed hadn’t been asleep at the switch, the financial crisis might never have happened. A decade after the crisis how many banks remain insolvent? Insolvency is the dirty little secret of our banking system.
Will the NYT editors’ preferred strategy for increasing wages, raising the minimum wage to $15, increase aggregate wages? The argument that it will appears to be unique to the editors of the New York Times. The argument has been that it will benefit those who earn minimum wage, something that’s obviously true, but I don’t think it’s nearly as obvious that raising the minimum wage will increase aggregate wages. That depends on several factors including both employment effects and multipliers and I don’t believe that either I or the editors of the New York Times know.
About .7% of workers earn at or below minimum wage but 42% of workers earn below $15/hour. The employment effects of a $15 minimum wage would probably be negligible in San Francisco but it could throw thousands or millions of workers who don’t work in San Francisco out of work. I just don’t know.