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A Minimum Wage Hike Economists Could Support

A Minimum Wage Hike Economists Could Support
Protesters rally in Chicago, nearly three years ago, as labor organizers escalate their campaign to raise the minimum wage for employees to $15 per hour. Amid a national push by unions and worker advocates for a $15 minimum wage, Illinois Democrats hoped to pass a hike during the legislative session, despite a warning from the Republican governor that he opposed an increase. (M. Spencer Green/AP)

By Tuesday, 25 July 2017 11:45 AM Current | Bio | Archive

Proposals to increase the minimum wage always evoke acrimonious debate. Economists often oppose increases, since demand for things (including labor) decreases when their price increases. As President Calvin Coolidge purportedly said, when large numbers of people are unable to find work, unemployment tends to result.

Liberals, though, will note that people earning the current federal minimum wage can't support a family. They will accuse opponents of being hard-hearted. Then, to pile on, they will cite a few studies purporting to prove that increasing the minimum wage actually increases employment.

These studies are statistical and their conclusions can be manipulated by careful selection of data and time periods. Since their results contradict fundamental microeconomics principles, we shouldn't have great confidence in them.

But if liberals really believe these studies, they could support a new kind of minimum wage guaranteed not to increase unemployment.

Imagine the following scenario: A Republican economist manages to get elected president. (I know! I know! But after 2016, don't assume that the implausible is necessarily impossible.) Congress, recaptured by the Democrats, votes to double the federal minimum wage. The president vetoes this legislation, but offers to sign it if Congress makes one little change.

The "little" change is a federal guarantee that if people are unable to find a job the government will put them to doing useful full-time work at the minimum wage, plus any legally required benefits. If liberals object to appropriating the money that might be needed to employ these workers, the president would remind them about their statistical studies.

If their conclusions are true, she notes, guaranteeing federal employment will cost taxpayers exactly nothing.

The president could also point out that the guaranteed employment is implicitly mandated by the Fifth Amendment to the U.S. Constitution, which ends with the following words: "Nor shall private property be taken for public use, without just compensation."

For people without personal fortunes, their most important property is the right to exchange their labor for money. As Benjamin Franklin noted, "He that hath a trade hath an estate." A law requiring wages exceeding what anyone will pay for a person's work renders that person unemployable. The law having deprived this person of his or her most important property, the Fifth Amendment requires that "just compensation" be paid.

Mere money would not be full compensation, since jobs produce benefits in addition to money: the orderly life promoted by working, experience that may help land a better job, the satisfaction of pulling one's own weight, enhanced social dignity. Nothing less than a job will suffice.

This improved minimum wage law should appeal to liberals. Today's legislation guarantees a certain wage only for people who can find a job and it may make jobs harder to find. This new approach would guarantee that all workers will actually earn the decreed amount.

The reformed approach to minimum wages might reduce liberals' enthusiasm for large increases since it forces them to consider costs and not just benefits. In economics jargon it internalizes the externalities.

Liberals' confidence in statistical studies might turn out to be low and they might decide to increase the minimum wage by only 10 percent rather than doubling it. A smaller increase would reduce the damage if it elevates private unemployment. It would also reduce the cost to taxpayers when the government hires those hurt by the increase, since the wages paid would be based on the minimum wage.

The improved minimum wage would be a win-win. If the statistical studies are correct, workers would benefit and taxpayers would not be on the hook for increased taxes. In the more likely event that private employment would be decreased, this would be canceled out when the government puts unemployed people on the payroll.

Rather than hurting only those who become unemployed, any pain resulting from the higher minimum would be distributed across the entire population by the tax increases necessary to pay for making government the employer of last resort. But everybody would benefit from the useful work done by people who would otherwise be jobless and from the social benefits of eliminating all unemployment.

Even if Congress does not enact improved laws, a similar reform could happen another way. Some and perhaps most of those currently unemployed are jobless because of today's minimum wage laws. A class action could be brought on behalf of these people demanding just compensation for deprivation of their property right to exchange their labor for money.

Such a lawsuit should have excellent prospects when it gets to our newly conservative Supreme Court, since conservatives are especially concerned with protecting people's property rights.

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published 1981 and his most recent book is "The Case of the Racist Choir Conductor: Struggling With America's Original Sin." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.

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Economists often oppose minimum wage increases, since demand for things, including labor, decreases when their price increases.
congress, conservatives, liberals
Tuesday, 25 July 2017 11:45 AM
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