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Wednesday, February 12, 2014

Raise the minimum wage? Yes, but...

I don't oppose raising the minimum wage by 10-20%, but it's treating a symptom instead of the underlying disease.

Looking past the number of people who are effectively unemployable -- a terrible situation of its own -- we have a large number of unskilled people in the job market. Wal-Mart and McDonalds cannot absorb them all, nor is the public willing to pay more taxes for government to be the employer of last resort. Consequently, the law of supply and demand at that end of the labor market produces low wages. And to make things worse, many of the people who do have job skills or who are highly educated cannot find high-value work commensurate with their abilities. They are compelled instead to dip into the low end of the labor market, too -- thereby exacerbating the problem of the unskilled. The widespread laments that the American middle class is being destroyed and that Americans have lost too many manufacturing jobs are other facets of the same ugly stone.

The only good solution is to create more high-value jobs and gradually to increase skills in the labor force. Look at Germany. There has been no minimum wage in Germany; they haven't needed one. The German economy, although it's not immune to problems, provides high-value employment for a much larger proportion of workers than the USA economy does. Yes, Germany will introduce a minimum wage this year, but that's a quirk of politics largely attributable to problems in the former East Germany.

Meanwhile the gap between the minimum wage and a living wage in most American cities has become so large that it would take a 50% increase, or more, in the minimum wage to eliminate the gap. That's not going to happen. No matter what the U.S. Chamber of Commerce says, businesses can absorb a small increase in the minimum wage without significantly cutting back employment. An increase like 50%, however, would cause huge, counterproductive job losses. In that sense, liberals and conservatives are both correct.

We must prevent monetary exploitation of farm workers, teenagers, and so forth. Also, we do need a safety net for the poor. But there are thoughts about how to do that more effectively than our present combination of a low minimum wage, a hideously complex tax code, and a collection of welfare programs that are expensive to administer. Those proposals should be brought forward for serious consideration, and I hope that they are found to be fiscally affordable -- assuming we have the courage to drop the less successful approaches of the past. There are many other potentially difficult aspects of a basic income to be addressed, and similarly there are challenges in how to create more high-value jobs. But merely dodging these questions by inflating the minimum wage as an expedient alternative is a mistake.