Here is a portion of Kevin Drum's argument against lowering the minimum wage to stimulate employment
Is this really what we've come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we're willing to throw them under the bus, who aren't we willing to throw under the bus?
Part of the problem is that Drum is absolutely convinced that our intuition (and, oh, 200 years of experience) that demand curves slope downward is flawed in the case of low-skill labor. He has read the two studies out of a zillion that, contrary to all the others, suggests that minimum wage increases may not affect employment and has convinced himself that these are the last word in the science. As an employer who has laid people off and made larger and larger investments in automation with each successive minimum wage increase, I will continue to trust my intuition that higher minimum wages makes hiring less desirable.
I will say, though, that there are a number of reasons why a change in the minimum wage may have a smaller overall effect nowadays than one might expect. That is because the minimum wage vastly understates the cost of taking on an unskilled worker. Even with a lower minimum wage, these government costs will remain:
- Soon, the employer will have to pay for the employees health care, a very expensive proposition
- Workers comp and other labor taxes add as much as 20% to the cost of labor
- In states like California, bad employees have an increasing number of avenues to prevent employers from firing them, from appeal to an ADA law stretched out of recognition to any number of other legal presumptions that employers have to just live with hiring mistakes
Hiring employees used to be a joyous occasion. Now I cringe and wonder what kind of liabilities I am taking on.
But back to Drum's statement, how sick is it that allowing people off the dole to actually get a job is called "throwing them under the bus?" Drum, for someone so fired up to make decisions based on academic work, sure is willing to put on blinders to all the academic work that actually characterizes who works for minimum wage and how long they stay on it. He who argues against making policy based on flawed intuition is operating here entirely from a flawed perception of who minimum wage workers are. He seems to want to picture families of eight supported for decades by someone trapped in the same minimum wage job, for whom a raise only comes when Congress grants it, but that is simply not the reality.
Just as one metric, for example, the percentage of all wage and salaried workers making minimum wage or less fell from 8.8% in 1980 to 1.7% in 2008. In fact, the actual absolute number of people making the minimum wage fell by over 2/3 during these years. I would argue that this number is probably too low. A dynamic labor market needs to bring people in at the bottom, and raising the minimum wage makes this harder, and so traps people into unemployment. In fact, the number of unemployed in this country is at least 6 times larger than the number of minimum wage workers.
If we dropped the minimum wage, only a fraction of the 2 million or so who make the minimum wage would see their wages go down, but lets assume a quarter of them would. We are therefore trying to prop up wages for 500,000 but at the same time creating barriers for 13.9 million people who are unemployed and are looking for work. And it is low-skilled workers who we are most particularly throwing under the bus by keeping minimum wages high.