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Should We Cut the Minimum Wage?

The current debate raging over the role of the minimum wage is usually presented as being fought between two choices. On the one side are those who advocate a large wage hike and on the other are those who oppose any change. But in reality, there is a third alternative, namely cutting the minimum wage, and that is the more principled counterpart to the proposal for raising it.

The reasoning is simple. Given all the very serious problems of poverty and unemployment in our society, with the existing minimum wage playing a significant role, no one with a straight face can assert that our current system is ideal, the best of all possible worlds. So if everyone who places principles over political expediency admits that the existing minimum wage is part of the problem and set at a damaging level, the obvious question is whether it should be raised or lowered.

Certainly this is recognized by the leading ideological opponents of a minimum wage hike, who hail from the libertarian camp and have always questioned the existence of a minimum wage on both moral and practical grounds. Several months ago I debated George Mason economics professor Bryan Caplan, a leading figure in that camp, and he explicitly called for the abolition of the minimum wage. His views are totally representative of the hard-core libertarian movement that so dominates the economic thinking of conservative Republicans.

Although this “abolitionist” position is a little too stark and extreme for most participants in the debate, calls for solving our poverty problems by sharply cutting the minimum wage are fairly common in public policy circles. In December, Reagan economic advisor Martin Feldstein advocated reducing the minimum wage to $4 per hour in a major WSJ piece and just a few days ago former business executive Robert G. Strayton took to those same pages to endorse a similar solution to American poverty, proposing adoption of a $5 minimum wage.

Beliefs so widespread in policy circles inevitably leak into the political world as well, and there was a media flurry several months ago when it was discovered that Illinois Republican Gubernatorial candidate Bruce Rauner had suggested his state should reduce its local minimum wage to the federal floor of $7.25. I suspect these sentiments, whether voiced or unvoiced, are very widespread in conservative circles. To these individuals “everyone knows” that the minimum wage is a bad and damaging idea, although a highly popular one, and they are torn between standing up for their beliefs or taking the side of what they regard as economically-ignorant populism.

Today’s conservatives cannot be solely blamed for such a stance. Back in the late 1980s, The New York Times itself ran a lead editorial bearing the memorable title “ The Proper Minimum Wage: $0.00.” In those days, educated and principled liberals and conservatives alike had converged on that position, and at least to the end of the 1990s such notable progressive economists as Nobel Laureate Paul Krugman were characterizing the minimum wage in terms that would fit very comfortably on the op-ed pages of today WSJ, while lesser liberal pundits were ridiculing the notion of a minimum wage hike as late as 2011.

Indeed, every single argument advanced against raising the minimum wage is an equally strong one for cutting it. If a higher minimum wage would eliminate jobs for teenagers and “minorities,” then surely a lower minimum wage would boost such employment. If raising the minimum wage would cause employers to use technology to replace their McDonalds servers, lowering the figure would certainly lead to the replacement of automation with low-skilled human labor. It cannot be denied that the very low cash wages of Victorian Era servants produced an enormous plenitude of such positions, and this is still the case today in much of the Third World, with even many lower middle class families regarding the presence of multiple domestics as a natural perquisite of their status. After all, if wages are cut in half, any business or individual employing low-paid workers can immediately fund two job openings for every previous one.

Why is this obvious counterpart to the “Raise the Wage” position so rarely found outside the confines of the WSJ Op-Ed page and similar ideological venues? The case of the aforementioned front-runner for the Illinois Republican gubernatorial nomination provides an illustrative explanation. Once it was discovered that on several occasions he had called for a minimum wage cut, the resulting media firestorm threatened the total collapse of his heavily-financed candidacy, and in sheer desperation he immediately threw his principles overboard and instead endorsed a large hike in the minimum wage.

So while committed supporters of raising the minimum wage are likely advocating an idea they sincerely espouse, the same cannot be said for most of their stand-pat opponents, whose position is almost entirely disingenuous. But a principled public debate on whether either to raise or to lower the minimum wage would be as one-sided a political battle as can be imagined, which is why it almost never takes place. Dishonest shadow-boxing is its typical substitute.

Indeed, our public discourse would take a more enlightening turn if mainstream journalists began to recognize this situation and sharply probed the views of wage-hike opponents, asking questions such as: “So do you support cutting the minimum wage, and if not, why not?” Not only would this an approach be useful from the policy perspective, but it might regularly generate the sort of major headlines that reporters and their editors find very appealing.

 

With regard to recent developments, I’ve been quite pleased at the reaction to my Forbes article suggesting that Walmart would enormously benefit from a $12 per hour minimum wage, a suggestion as shocking as it is logically based. According to the publication’s website, the piece has garnered over 20,000 pageviews, 1200 Likes, and 170 Tweets, very solid metrics for this sort of sober policy issue. More importantly, it was brought to the personal attention of at least one Walmart board member, perhaps opening the door for positive developments in that direction. After all, the public endorsement of a big minimum wage hike would cost that huge corporation not a single dollar and surely produce a tidal wage of the sort of favorable national media coverage it has sorely lacked in recent years. Doing well by doing good is an attractive proposition for most executives.

I was also pleased to attend President Obama’s minimum wage announcement at the White House last week, though less pleased that the East Coast storm disrupted my return plans. My appearance on Chris Hayes’ MSNBC show went well, and E.J Dionne of the Washington Post focused his nationally syndicated column on the ironies of the minimum wage debate and my own initiative effort, as partially excerpted below:

There is a magnificent public policy that achieves many of the goals conservative politicians regularly extol. These include promoting work over dependency, reducing the cost of social welfare programs, fostering economic growth and strengthening families.

The policy in question is raising the minimum wage. The only mystery is why so few conservative politicians see the issue this way. Rank-and-file conservatives know better. A December Washington Post/ABC News poll found that 53 percent of self-described conservatives supported a minimum wage increase. Republican politicians who are so solicitous of conservative opinion need to follow the moral and practical intuitions of those they say they represent.

One conservative, at least, is speaking for this majority. Ron Unz, a Silicon Valley millionaire and one-time Republican candidate for governor of California, is championing an initiative to raise his state’s minimum wage to $12 an hour. His reasons are thoroughly in keeping with his ideology.

Unz has argued that a minimum wage hike “would function as a massive stimulus package.” He told ABC News that if the national minimum were increased to $12, “probably between $150 billion and $175 billion a year would go into the pockets of the lower-wage families that spend every dollar they earn. It would cause a tremendous boost in economic demand.”

He also pointed to the fact that government — through wage subsidies in the tax code, Medicaid and food stamps — is now conferring substantial benefits on employers of low-wage labor.

“One of the strange things in our society right now is that we have all these low-wage workers who are getting $7.50, $8 or $9 an hour,” Unz said, “and because they earn such small wages, the government subsidizes them with billions or tens of billions of dollars of social welfare spending that comes from the taxpayer. It’s a classic example of businesses’ privatizing the benefits of their workers while socializing the costs.”

• Category: Economics • Tags: Minimum Wage
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