January 18, 2015
Minimum Wage and Purple Unicorns
There is a lovely little spat about minimum wage legislation going on in my local paper. It pits economic, music, criminology, telecommunications and psychology professors against one another in an entertaining debate.
Now, I don't wish to be mistaken as a peacemaker. These are tenured associate and full professors, all of whom have been professors much longer than I. They are old enough to disagree and be disagreeable. But, it is important to understand what is going on with the minimum wage, especially since a group of Hoosier lawmakers are proposing a 39 percent increase this year. I think both sides are talking past each other.
Economists who study the minimum wage largely agree on its economic effect. Its presence and its increase cause some workers to receive better pay, and some to lose jobs. The extent of these effects depends upon the size of the minimum wage increase relative to market-based wages. Of course market wages are determined by the location of the job, the skill of the worker and the willingness of the business to pay the wage. These market wages are imperfect, but markets set wages.
Because there is such variation in impacts across time and place, economists come down on both sides of the issue. However, one thing every serious analyst agrees upon is that its effects have been small over the years. Perhaps less than one out of every 200 adults works at minimum wage jobs. Those mostly hurt and helped by the minimum wage are teenagers; very, very few of whom live in poverty.
Among the non-economists writing on the opinion page, the entirety of this debate seems about helping those in poverty. This is sweetly naive, and makes me wonder if my academic colleagues wish for sparkly purple unicorns to dance at their faculty meetings.
The minimum wage debate has nothing to do with helping folks in poverty. In fact, it is hard to identify any other public policy that impacts fewer people in poverty than the minimum wage. The minimum wage debate is all about raw political power. There is nothing wrong with political power, of course, but we should not confuse it with dancing unicorns.
The real reason there is such a focus on the minimum age is that any change in it leads to contract renegotiations for most public sector union contracts. Now, there is nothing wrong with public sector workers, nor is there anything wrong with negotiating with them about their salary. We just ought to be honest about how it works.
To be honest, our anti-poverty tools, including the minimum wage are feeble. One good fix would be to dismantle most of the social welfare programs and instead offer a guaranteed income to each family. It’d be cheaper and far more effective. The only problem is that we’d need a lot fewer public sector workers to help administer hundreds of programs. So, expect dancing unicorns long before we hear a proposal like this from the friends of the minimum wage.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
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