What’s Not to Like?

”America is going through one of its periodic fits of agony over the minimum wage” is how The Economist magazine put it. The restive workers staging demonstrations at Wal-Mart and fast food restaurants have again made a federal level wage increase a prime topic that reliably summons the arguments from economists and legislators that are always heard, with each side waving the newest study cherry-picked to support its case.

The public is more united. A November Gallup poll found that 79% were for raising the rate, true even among 58% of Republicans, who have traditionally been opposed to increases. The New Year brought an increase to 1.4 million people in thirteen states, nine of them because voters had taken charge, using ballot measures to enact laws that index their wage floor to the cost of living. The minimum is now higher in twenty states than the federal level of $7.25 an hour, as a recalcitrant Congress lags behind. A proposal to raise the rate to $10.10 an hour nationwide has a slim to none chance to pass in the House. In March, the House voted down a $10 an hour proposal with Speaker John Boehner proclaiming, “I know about this issue as much as anybody in this town. What happens when you take away the first couple of rungs on the economic ladder, you make it harder for people to get on the ladder. Our goal is to get people on the ladder.”

This is one of thread of the opponents’ argument. They aver that because 80% of those paid the minimum wage are not supporting a family, according to a report by American Action Forum, the minimum is a sort of dues one pays, a ticket of admission to “the wicked world of holding a job, and … a step to another, better job”, as the Weekly Standard considers it.

Stephen Moore, of the Wall Street Journal’s editorial board, considers himself an expert, having studied the subject for decades, he has said. On Fox News with Neil Cavuto at the end of August, when fast food workers were staging one day strikes, he claimed their demands would result in "a lot less teenagers hired for those kinds of jobs" and to decisions to "substitute workers with machines and automated things".

These assumptions rest on the belief that the minimum wage is about teenagers. Not so, says the Center for Economic and Policy Research, a liberal think tank. Only 14% are under 20, so how could the 80% claim be true?

The minimum wage issue has always been a war of dueling studies but the studies are used only to buttress preconceived views. “When you raise the price of employment, guess what happens? You get less of it,” said Speaker John Boehner in February. This has always been the reflexive answer from economists who, asked such a question, immediately see chalk lines on a blackboard — one line going up means the other must be going down.

One such economist is David Neumark of the University of California, Irvine, whose work on the subject is often quoted. He says “It’s kind of a wash. The hit to losers wipes out the gains for winners.” A higher minimum wage costs some low-skilled workers their jobs while helping those who keep them.

But newer studies have discredited these older assumptions. A technique adopted from medicine is the meta-study, where many small clinical trials are combined to produce consensus estimates. As “one of the most studied topics in all of economics”, the minimum wage’s impact on jobs is well suited to this form of analysis. The quote comes from this study from the Center for Economic and Policy Research which crunched, by our count, hundreds of studies to conclude “that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers”.

One such survey, an expansion of a pioneering 1992 work, compared 318 counties along state borders where the minimum wage was increased in one state but not the other. Their examination of employment data from 1990 to 2006 in those counties found "strong earnings effects and no employment effects of minimum wage increases." Employment levels showed little or no difference on either side of the border, whereas earnings in an area improved when the wage was lifted.

Proponents argue that, even had the study showed some loss of jobs, does it make good sense to hold everyone else at an unlivable wage to save those jobs?

Harvard economist Martin Feldstein, economic advisor under Reagan and a driving force behind George W. Bush's attempt to partially privatize Social Security, is also concerned for teens, who constitute half of the 1.6 million under age 25 earning the minimum wage. The minimum wage is “a crude policy” that fails to distinguish between age groups, in his view. And, absent offsetting productivity gains, “higher wages … force firms to raise prices to cover their costs — which reduces the demand for the firms' goods and services and thus reduces employment”. Lines crossing on the blackboard again, as well as that insistence that minimum wage hikes cost jobs. How then to explain how fast food chains and big retailers have kept growing ever larger despite periodic minimum wage increases? Saying “there is far more evidence that confirms that higher minimum wages do reduce employment”, Feldstein shows his preference for Neumark to the much broader evidence in those meta-studies. The Neumark view is more accommodating to the idea he puts forth in a Wall Street Journal op-ed. He proposes to integrate the minimum wage with welfare payments. He posits a woman receiving $10,000 a year in safety net benefits, which is equivalent to a job paying $5 an hour all year, who could have a better chance to find work if she could treat “half of that $5 as an offset to the minimum wage” and legally offer to work for $4.75 an hour. We couldn’t decipher that bit of alchemy, but it would seem that he just put those teenagers out of work and replaced the minimum wage with a bargaining bazaar. We can’t help ourselves from thinking of Minnesota representative Michele Bachmann saying, “if we took away the minimum wage … we could … virtually wipe out unemployment … because we would be able to offer jobs at whatever level.”

Supporters of hefty minimum wage increases are angered by the realization that they are subsidizing large, low-paying corporations through taxpayer funding of the social programs workers must fall back on to supplement their poverty-level wages. It’s a subsidy amounting to $7 billion to the fast-food industry alone, according to one study. This article offers the example of McDonald’s. Given their size, their share of that $7 billion comes to $1.2 billion, or $300 million a quarter. Taxpayers effectively paid to McDonald’s a subsidy of 20% of the company’s $1.5 billion 3rd quarter profits. Turns out your Big Mac was more expensive than you thought.

But the arguments run in circles. Returning to Feldstein, the minimum wage is “in fact a hidden tax increase” on businesses that is passed on to consumers as higher prices. But maybe we’d rather be told the real price of that Big Mac rather than be charged a hidden subsidy.

This preference amounts to a curious inversion of the usual ideologies of Democrats and Republicans. The well-to-the- right Weekly Standard says “Liberals push for a higher minimum wage in part because a targeted alternative to helping poor working parents—such as tweaking the Earned Income Tax Credit—would cost the government money”. Isn’t the usual complaint that liberals are only too happy to spend money, and aren’t Republicans the ones who are averse to income subsidies? Yet it is Republicans who have often thought an unconditional basic income paid to every American, rich or poor, would be better than the minimum wage. Richard Nixon saw a guaranteed income as a cure for welfare. Milton Friedman, the late libertarian economist, favored it to end the intrusiveness of the welfare state, although preferring diminished amounts at higher income levels. This scheme would tap the public till and have government paying supplemental wages rather than corporations paying decent wages to their own workers. Dislike of the minimum wage seemingly leads conservatives to extremes.

Another argument is that the nation’s job problems run deeper and the minimum wage is no solution, that economic policy should instead focus on job creation and growth of the economy. “If we want to help the working poor we need to help them become more productive and create more jobs”, said that Weekly Standard piece.

This pushes against an open door: no one maintains that a wage increase solves the multiple problems of unemployment, lack of skills to perform today’s jobs, displacement of workers by machines, etc. This camp says that, while better solutions are needed (never mind that nothing is in the works to develop them), the needs of people right now should be ignored because assisting them is not a total solution.

Similarly, there are those who decry increasing the base wage as income redistribution, a Democratic plot to narrow the income gap. Really? That $2.85 an hour bill languishing in Congress would add less than $6,000 a year to a minimum wage earner’s income. If you hear that called “income redistribution” in a country where there are 13.2 million households worth over a million dollars, that’s what propaganda sounds like.

All of this is beside the point — ours, anyway. This piece is mostly about arguments against hiking the minimum wage. We covered some of them plus the arguments for raising the wage in a lengthy treatment back in July, subtly titled "Let's Permanently End Minimum Wage Stupidity" in which our key point was that this is about people’s lives. Our position was (and is) that no business should expect to depend for its existence on immorally exploiting fellow Americans. If a business can only survive by keeping its workers in poverty, then it deserves to go under. The minimum wage puts businesses to that test.