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.