Tuesday, February 12, 2013

Why President Obama is wrong on the minimum wage

In tonight's State of the Union address, President Obama said:

We know our economy’s stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher. Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty -- and raise the federal minimum wage to $9 an hour.
No, let's not. No matter what we "declare," there is going to be some amount of poverty in a country of 300 million people — and Obama's proposal would increase that amount. Raising the minimum wage creates more poverty by preventing people from being able to find employers who are willing to pay them. The law can only force employers to pay the minimum wage to the workers they do hire; it can't force them to hire anyone. Make it more expensive to hire workers, and not as many workers will get hired. The difference between $7.25 an hour and $9 an hour is tiny next to the difference between having a job (which can lead to getting better jobs) and not having a job.

Also, why should the question be whether you could single-handedly support two children on the minimum wage? The minimum wage applies to everyone. Not everyone is single-handedly raising two children! To forbid workers in other circumstances from getting a job paying a certain amount just because someone would want to earn a higher amount is simply cruel.

7 comments:

trailbee said...

Minimum wage is a terrible bug-a-boo.
"Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty -- and raise the federal minimum wage to $9 an hour."
Well, everyone making $9 is now going to be asked to pay for new healthcare taxes. The people making $7.28 are probably wondering where their new taxes are coming from and how to pay for them. So much for that solidarity speech. I hope all the Dems felt warm and cuddly. What a sham.

LemmusLemmus said...

Minimum wage seems not to be such an easy case. I have not read the rather voluminous literature on the topic, but here's a post saying that a minimum wage does not seem to hurt employment when it is no more than 40% of the mean wage. (I have not researched what the mean wage in the U.S. is.).

However, the post also points out that (i) those are short-run estimates only and (ii) that there's no evidence finding that the minimum wage reduces poverty rates. Also keep in mind that it will increase the prices of some goods and services, including those bought by poor people.

Having said all that, the "let’s declare" phrase displays a rather interesting interpretation of government and society. I sense a twitter hashtag #letsdeclare ("Tonight, let’s declare that, in the wealthiest nation on Earth, no one should die before the age of 70"). Given that I'm not on Twitter, someone else do it.

Jason (the commenter) said...

A higher minimum wage is great if you're a robot. And considering all the hate they get ("Please prove you're not a robot" says google), it's nice to see someone is looking out for them.

This can be be Obama's great legacy.

Let's face it, it was silly to place our hope in children, the robots are our future!

John Althouse Cohen said...

LemmusLemmus, that post says the unemployment effect of increasing the minimum wage is smaller when it's below 40%. There may still be an effect. The post also concludes: "No-one has been able to find any evidence to suggest that increasing the minimum wage has a measurable effect on reducing poverty."

Anyway, I'm more convinced by the study that looked at two states where one of them kept the minimum wage the same while the other one raised it at various times (from my previous post).

LemmusLemmus said...

John, it says verbatim: "When minimum wages are 'low' - say, less than 40% of the average hourly wage - then moderate increases won't have a significant short-run effect on employment." Granted, one wonders exactly what to make of the qualifier "significant".

As for the bit on poverty reduction, yes, I'd mentioned that myself (point ii above).

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