Reclaiming Prosperity: A Blueprint for Progressive Economic Reform
Todd Schafer and Jeff Faux, editors
Most of these 17 essays are
weak. William Spriggs and John Schmitt argue for a higher minimum wage, the
best essay of the lot, not that it is extremely strong. In perhaps the
second strongest argument Robert E. Scott and Jerome Levinson offer intriguing
ideas on trade and international labor standards. Dean Baker writes a weak
defense of the Social Security status quo. Robert Eisner proposes a not progressive enough progressive flat tax that preserves too many wasteful
I will focus on the minimum wage
argument. The standard argument against the minimum wage says the minimum
wage increases unemployment. In a close thing to a controlled study, however,
research by David Card and Alan Krueger suggests moderate increases in the
minimum wage do not increase unemployment. New Jersey raised its minimum wage
in 1992 from $4.25 to $5.05. Minimum wage employment in the region studied
increased. Pennsylvania's minimum wage remained at $4.25. In a Pennsylvania region similar
to the region in New
Jersey fewer new jobs were created.
Perhaps the higher minimum wage caused more people to seek and obtain jobs.
Some reply that Card and Krueger’s
research has flaws. David Neumark and William Wascher argue that the New Jersey
increase in the minimum wage may not have increased unemployment, but it reduced
the overall number of hours worked by minimum wage workers 4.6 percent from
what it would have been without the increase. Others contend that Neumark and
Wascher's numbers are baloney. Even if true, it is still not a strong counterargument.
The New Jersey minimum wage increased hourly wages 18.8 percent. Take away the
4.6 percent reduction in hours and the result is still about a 14 percent hike
in salary. The decrease in hours worked may have been due to increases in
hourly productivity, creating wealth and jobs elsewhere. Or changes in investing
and spending patterns, creating jobs elsewhere.
Some say the minimum wage helps teens
and young adults in wealthy families too much. Lawrence Mishel and others
counter by saying that only 12 percent are teens in families with incomes above
the mean, many in families not far above the mean. Even among teens from above
the mean families, some have parents who provide little financial assistance.
There is little chance a teen from a top one percent family, having a $900,000 income,
who receives a large allowance, would bother with a minimum wage job,
except for social, philanthropic or other reasons.
Other arguments for the minimum wage
contend it increases work force stability and reliability. It has a ripple
effect on those who earn just above the minimum wage, increasing the incomes of
30 million individuals in the bottom 25 percent of the work force.
Another claim is that the minimum wage
increases inflation. Maybe but only slightly. Minimum wage labor is a trivial
cost in the products we buy. Even for businesses that rely
heavily on minimum wage labor, costs are small compared to receipts. A 70 cent
increase in the minimum wage would not increase the cost of a fast food burger
70 cents. A 15 percent increase in the minimum wage would increase overall
prices at most between 0.1 percent and 0.2 percent. Small amounts of inflation
are not harmful. Business self-interest causes inflation too. Businesses would
much rather sell five items at $30 profit than ten items at $12 profit. We do
not fret over that inflation. An increased minimum wage would come partly at the expense of the profits of the wealthy, the main reason it is opposed. Money
in the hands of lower-income workers, however, creates more benefit to humans than
the same amount of money in the hands of the rich.
The minimum wage also reduces
dependency, reduces the incentives to pursue illegal activities, and other
It may increase tax revenue because of
increased working and seeking of work. It lowers legitimate resentment and
builds social and human capital.
A strange "counterargument"
claims that an increased minimum wage would force companies to increase productivity.
Great. Increasing productivity is a good thing. That is how the economy should work. Increased productivity increases incomes, which increases new
investment, which creates new jobs. A low minimum wage encourages employers to
create low-productivity jobs. We see this in poor countries where plutocrats put hordes of minuscule wage workers to work in servile, unproductive jobs (mansions, pyramids, colossal gardens) for the glorification of the plutocrats own status.
Ultimately, the unemployment talk
may be nonsense. The Federal Reserve ultimately decides unemployment rates. Any
increase in unemployment due to increased minimum wages could consciously or
unconsciously be undone by the Federal Reserve--the silent force--when it
decides interest rates. One decision by the Fed can cause more employment or
unemployment than a dozen legislative policies.
Another argument says that the
government never has the right to interfere in the "natural" and
"free" market. But Federal Reserve policies that increase
unemployment to keep pay low and prevent tight labor markets—on behalf of the
rich--are colossally more intrusive into the free market than dozens of
policies that commonly get referred to as "class warfare" and
"soak the rich." The Fed should be called the Soak the non-rich Bank. The mere creation of fiat currency in a large nation-state is a profoundly right-wing act.
Even if we accept that the Fed must
intrude in the "free" market to create the benefit of checking
inflation, why is it acceptable to intrude on behalf of the rich, but not
acceptable to intrude on behalf of the non-rich?
Power market ideology is not
"natural." It does not maximize benefit, rights, liberty or anything
else, except for the wealthy. Markets that are truly free would create
miniscule unemployment and worker "shortages," forcing the wealthy to
pay much higher wages. (Funny how there is such a phrase in the mass media as
worker shortages but no such term called pay shortages.) Power marketers are
opposed primarily because a higher minimum wage would cut the profits of the
wealthy, not because it would lead to trivial increases in inflation or unemployment.
A popular counterargument contends most
minimum wage earners are not sole wage earners. But a large 38 percent are the
sole earner. Minimum wage earners earn a mean of 45 percent of family income.
This counterargument, however, is not easy to dismiss. The minimum wage may
not be poorly targeted, but perhaps other policies target better.
Progressive vouchers, tax shifts, tax credits, and wage subsidies have more advantages than the minimum wage and fewer down sides.
Book review by J.T. Fournier, last updated, July 26, 2009.