Greg Mankiw says it far better than I ever could:
Consider this policy to increase the income of workers at the bottom of the income distribution:
1. A wage subsidy for unskilled workers, paid for by
2. A tax on employers who hire unskilled workers.Now, if you think like an economist, you might wonder about the logic of part 2 of this proposal. You might say, "A tax on the hiring of unskilled workers would discourage their employment, offsetting some of the benefits they would get from the wage subsidy. It would be better to finance the wage subsidy with a more general tax, rather than with a tax targeted specifically on employers of unskilled workers."
I agree. So why did I bring up this proposal? Because a policy essentially the same looks likely to become law, having been advocated by Congressional leaders and, recently at his news conference, President Bush. Haven't heard of it? It is called an increase in the minimum wage.
1 comment:
Thought, there is far more evidence that minimum wage has a weak negative effect on unemployment than any positive economic effects. There is one study by Card and Krueger that echoes your view, but it has been largely discredited. I don't know of any other studies suggesting that minimum wage legislation helps anyone.
Nearly all economists agree that raising the minimum wage tends to increase unemployment. There is some disagreement amongst economists about the magnitude of this effect and whether or not other effects of minimum wage legislation are worth the increased unemployment. (There is also a monopsonist (single buyer) model in which minimum wage may help under very specific circumstances, however this doesn't seem to bear up under empirical scrutiny.) I think you are misrepresenting the uncertainty economists have about the effects of minimum wage. See comments by Don Boudreaux and Greg Mankiw for more on this.
I have never heard anyone predict doom and gloom for the economy as a whole because of minimum wage increases. There aren't many blips from it hurting unemployment or the economy because it has its greatest impact on the poorest of the poor who are already unemployed and make up a small fraction of the economy. Their lack of opportunity is tragic and higher minimum wages shut them further out of economic opportunity. Milton Friedman considered minimum wage legislation to be some of the most anti-black laws on the books and I'm inclined to agree. I am against minimum wage legislation because I believe it is the most compassionate stance I can take. Legislation does not lead to wishes coming true, even if the wishes are intended to help others.
You are correct to say that market is not God and this is a point that some need reminding of. However, the government is not God either and many more need reminding of that.
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