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Reclaiming Prosperity: A Blueprint for Progressive Economic Reform

by 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 transfers.


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 costs.

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.


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