Monday, March 4, 2013

Wage Slaving 101

Former Obama economic adviser and current UC-Berkeley econ professor Christina Romer all but pours cold water on the notion of even having a minimum wage, let alone raising it to $9 an hour as the President suggested in his SOTU speech last month.

First, what’s the argument for having a minimum wage at all? Many of my students assume that government protection is the only thing ensuring decent wages for most American workers. But basic economics shows that competition between employers for workers can be very effective at preventing businesses from misbehaving. If every other store in town is paying workers $9 an hour, one offering $8 will find it hard to hire anyone — perhaps not when unemployment is high, but certainly in normal times. Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines. 
One argument for a minimum wage is that there sometimes isn’t enough competition among employers. In our nation’s history, there have been company towns where one employer truly dominated the local economy. As a result, that employer could affect the going wage for the entire area. In such a situation, a minimum wage can not only make workers better off but can also lead to more efficient levels of production and employment. 
But I suspect that few people, including economists, find this argument compelling today. Company towns are largely a thing of the past in this country; even Wal-Mart Stores, the nation’s largest employer, faces substantial competition for workers in most places. And many employers paying the minimum wage are small businesses that clearly face strong competition for workers. 

Now, I'm not a economics professor, but the problem isn't production, efficiency, or competition.
It's cost of living.  It's the fact that minimum wage doesn't begin to cover a place to live anywhere in America.

And Romer's solution is increasing the Earned Income Tax Credit.

It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous. 

By raising the reward for working, this tax credit also tends to increase the supply of labor. And that puts downward pressure on wages. As a result, some of the benefits go to businesses, as would be the case with any wage subsidy. Though this mutes some of the direct redistributive value of the program — particularly if there’s no constraining minimum wage — it also tends to increase employment. And a job may ultimately be the most valuable thing for a family struggling to escape poverty. 

Not if the job doesn't cover the cost of rent in the first place.  Even here in Kentucky, one of the cheapest states to live in,  you'd need to be pulling down $11+ an hour to afford a two-bedroom apartment.

Ohio's $7.85 a hour minimum wage still means you'd need $13+ an hour, same with Indiana's federal minimum.  The $9 an hour the President is talking about is a solid first step, but more tax credits for the poor isn't going to fix the problem.

Talking about minimum wages without talking about cost of living problems is a ridiculous waste of time and space, and frankly I'm more than a little peeved at Professor Romer for forgetting that:  nowhere in the piece does she mention a living wage.

Just annoying as all hell.


Russell Masingale said...

how far up her own ass is her head right now? a millisecond after the min wage is repealed wal-mart will drop every single hourly employees wage a dollar an hour at least. putting faith in a corporation to not screw its own workforce makes just as much sense as not requiring environmental protections for business. we already saw how well that worked out.

dxmachina said...

This is the same Christine Romer who was the cynosure of the progressive internet when the stimulus was being crafted and wrangled through Congress in early '09.

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