Commentary & Opinion
3:50 pm
Fri April 4, 2014

Michael Meeropol: Opponents Of Raising The Minimum Wage Seek To Muddy The Waters With Name-Calling

Have you ever heard of the Employment Policies Institute?   It’s one of those so-called “research” organizations that are actually public relations fronts for some special interest groups.

[For a fascinating introduction to this and other fronts for a lobbyist named Rick Berman see the following details:  http://www.sourcewatch.org/index.php?title=Employment_Policies_Institute]

Support for raising the minimum wage was recently voiced by 600 economists in January of this year.   They signed an open letter to President Obama and the Congressional leadership calling for a rise to $10.10. 

The letter read in part:

This policy would directly provide higher wages for close to 17 million workers by 2016. Furthermore, another 11 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders. The vast majority of employees who would benefit are adults in working families, disproportionately women, who work at least 20 hours a week and depend on these earnings to make ends meet. At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum-wage increase would provide a much-needed boost to the earnings of low-wage workers.

In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

(For the entire letter and list of signatories, see http://www.epi.org/minimum-wage-statement/)

Because of inflation since 1968, in order to have the minimum wage able to purchase what it could back then, it would actually have to be raised to over $10.70.

Many economists, especially those wedded to the idea that just three words “supply and demand” answer every question, argue that raising the minimum wage will reduce the number of workers that businesses will hire.  That is because the wage is (according to this argument) just like any other price and the labor market is just like any other market.   A higher price (higher wage in this case) means a lower demand for labor on the part of business.  Thus, a rise in the minimum wage will increase unemployment among low skilled workers.

If you think this is a simple-minded approach to the minimum wage issue, you’re right.  Economists cover themselves by saying that the inverse relationship between the wage and employment opportunities holds true --- “all other things being equal.”   This translates into English as – as long as nothing else changes.   In the case of a rise in a wage rate, lots else can change.   For example, a rise in the wage might cause workers to work harder, thereby increasing the productivity that businesses buy with the increased wage.  I rise in the wage might increase incomes in general which will in turn lead to increased purchases of the business’ products.  That might lead businesses to hire more workers despite the increase in the wage rate.

Because of these and other possibilities, the question of whether or not a rise in the minimum wage would lead to rising unemployment is an empirical question – It cannot be solved by reasoning alone -- by appeal to basic – simple-minded – principles.

In fact, ever since David Card and Alan Kruger published their first study comparing employment in fast food restaurants in two neighboring states after only one of them raised its minimum wage, the weight of the evidence seems to suggest that there have been no negative employment impacts of recent increases in the minimum wage – either in states or at the federal level.  (See http://davidcard.berkeley.edu/papers/njmin-aer.pd  “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania” by David Card and Alan Krueger.)

Thus, it is not surprising that when the Employment Policies Institute decided to attempt to combat the reasoning presented by the 600 economists last January, they chose to attack the messenger not the message.

In February, they ran an ad which said in part, "Many of the 600 economists …  are radical researchers or full-time employees working at union-backed groups. Of those who support a higher minimum wage, 45 percent don't specialize in labor economics." They then cherry-picked quotes from eight of the signers which demonstrated that these folks were either Marxists or supporters of “way out” ideas like that the official 9-11 story is false. 

For the full ad see Employment Policies Institute, Heard about all those economists who support raising the minimum wage?, New York Times full-page ad, February 27, 2014.

Before we get to the interesting part, it is important to understand that one does not have to be a specialist in Labor Economics to understand that a simple supply and demand analysis of the labor market where the only impact of a change in wages is a change in the quantity of labor demanded is ridiculously incomplete.

However, the most significant aspect of the ad is the effort to tell the readers to forget that fact that, according to an article in Businessweek the same day "The vast majority of the letter’s signers, … are in the mainstream of the profession.” Including “ … seven Nobel Prize winners and eight former presidents of the American Economic Association."   Instead, they want readers to believe that the important fact is that some of the signers have opinions that no sane American would share (sarcastic irony intended).

Sound familiar right?   For those too young to remember the 1950s, this is called RED-BAITING.  If you can argue that communists (or some other despised group) share the opinion of the person you’re trying to discredit that ultimately discredits that person’s arguments without even having to mention those arguments.   You don’t have to confront the reasoning of someone once you’ve linked them to the “way out” ideas of some despised group.

(Interestingly, those making this argument almost never consider the idea that it might suggest that even members of a “despised” group might be correct in some of their views…)

Clearly, the tack taken by the Employment Policies Institute is an example of one side of the argument knowing they don’t have a scientific leg to stand on.

 In fact, ---  raising the minimum wage would be good for the economy and good for low wage workers.  No fancy-pants PR firm with a seemingly neutral sounding think tank name can change that, no matter how hard they try.

Michael Meeropol is visiting professor of Economics at John Jay College of Criminal Justice of the City University of New York. He is the author (with Howard Sherman) of Principles of Macroeconomics: Activist vs. Austerity Policies.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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