Raising the Minimum Wage

Two days after the 100-hour window, the House of Representatives raised the minimum wage to $7.25. The bill passed by a margin of almost 3-to-1, making it unclear why the Democrats couldn’t get the minimum wage raised when they were out of power.

Greg Mankiw is arguing against the raise by saying it helps the poor less than expanding the Earned Income Tax Credit. The standard response to his argument would be, “It’s not either/or.” Ordinarily, such a response is misguided, because political capital is a limited resource. However, in this case, it’s exactly on target.

The Democrats were elected to raise the minimum wage. Before the election, 68% of Americans said they considered raising the minimum wage a priority. If that’s not a mandate, I don’t know what is. Usually political responses are either/or because of limitations in political capital; however, with such a mandate, raising the minimum wage at worst doesn’t spend any political capital, and at best replenishes it.

Expanding the EITC is good. If the Democrats or the Republicans offer something like it in this session, it will do good. Just note that in 4 years of uninterrupted control of the White House and both houses of Congress, the Republicans did not do anything to reduce taxes on the poor; instead, they cut taxes on millionaires.

Of course, the Republican politicians’ arguments against the raise are even worse. In 2006, France’s economy grew 2.5%, despite having a pre-Thatcherite economy and a minimum wage of €8.27 per hour. Remember that next time you hear some libertarian rant about how the minimum wage reduces growth.

7 Responses to Raising the Minimum Wage

  1. rmb says:

    Why couldn’t the Democrats enact a minimum wage raise earlier? Because the Republican leadership would not have let the proposal come to a vote. One of the most important benefits of controlling either the House or the Senate (but especially the House, where almost all procedural power is vested in the Speaker) is the ability to control what gets considered. When a proposal to hike the minimum wage is up for a vote, no one wants to vote against it, because (as you noted) it’s hugely popular. However, the pro-business wing of the Republican Party absolutely hates the minimum wage, meaning the Republican leadership had a tremendous incentive to ignore the issue of raising the minimum wage.

  2. Bruce says:

    The fact that an economy grows during one year in one country that has a minimum wage is not evidence that a minimum wage does not stunt growth, only that it does not absolutely preclude growth over a period of one calendar year. It is possible that the imposition of a minimum wage (or by corollary, an increase thereof) may inflict substantial damage on an economy’s growth, but that such damage may not continue to depress long-term growth beyond the first “hit”, i.e. the “stunting” was an time-delimited event lowering the rate of exponential growth for a period, but not forever. Again, a thesis that may be right or wrong.

    Both macro- and micro-economic arguments exist against the minimum wage, though apparently not viable political ones. Perhaps similar micro and macro-arguments favor the minimum wage, though I would be curious how far they deviate from the classical models. The fact that general-purpose buffoons like George Will repeat anti-minimum wage arguments does not make them wrong. Few discussions of the minimum wage include details on who earns that wage, how long they work before a raise above that wage, how many such wage earners are teenagers working in candy stores or fathers of 3, what the employment, criminal and educational backgrounds of such workers, etc., how often illiteracy is an issue, etc., and also who the employers are who pay such wages (corporate America vs. the broken-down country store.) Personally, I worked sub-minimum wage off the books for my first job in a beat-up vegetable market in Maryland ($2/hour when the minimum was $3.15), but I don’t feel that I was abused in the least.

    My own policy preference would be taxation to support income-based assistance i.e. cash help to children of such workers and skill retraining, rather than a general ban on low wages. A worker working for 5 bucks an hour and feeding kids with her check is not the specific moral burden of the employer who offered the job, but of all of us, you and me included. But this is a moral argument, not a micro- or macro-economic one.

  3. Overdog says:

    It’s a crazy world. One wonders how the government determined that each and every minimum wage worker deserved a raise. One also wonders where the power to commandeer the human resources departments of private companies is derived from. The minimum wage of course doesn’t apply to illegal aliens, which will now be in even greater demand than ever to do the jobs that Americans aren’t willing (read “allowed”) to do.

  4. Alon Levy says:

    Overdog, If your conclusion is that illegal immigrants should be offered amnesty so that safety and minimum wage laws do apply to them, I’m with you.

    Bruce, France is just one example. In the US, states with minimum wages above the federal standard don’t grow more slowly than states without, even though they should if only because of economic convergence. When Santa Fe instituted a living wage ordinance – it’s now at $9.50/hour, but I think it started with $8.50 – businesses found ways to cope by increasing prices, increasing productivity, cutting overhead, and cutting profit margins. The same happened when Britain introduced its first statutory minimum wage.

  5. Bushbaptist says:

    The minimum wage here in NZ is $11.25/hr (just been increased from $10.00) and it has had no effect on our economy. Some prices have risen slightly, e.g. it costs an extra cent to buy an apple but by and large the has been no change.
    I am a believer in the Hibble Principle “That the lowest wage should not be governed by economics but on human necessity.” That is: it should be enough to meet the basics of human life within the economy it is generated.
    It costs money to go to work – from such things like car running expenses where necessary, bus fares, clothes, shoes, even child care too.
    Too many rightie wingnuts are of the opinion that wages should the barest minimum to keep profits high and those workers will get their reward in heaven.

  6. Johan Richter says:

    Do tou really want to use France as an example of how great an economy can work? You are aware of its unemployment rate, aren’t you?

  7. Alon Levy says:

    Yes, I am. I’m also aware of the European Central Bank’s growth-depressing monetary policy.

    When people bring up unemployment, I use another example, namely Britain. Britain has a minimum wage of PPP$8/hour and about the same unemployment rate as the US.

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