Behind the Lines: Minimum Wage
Welcome to Behind the Lines, a weekly conversation with Salt Lake Tribune cartoonist Pat Bagley and BYU economist Val Lambson.
Lambson: The State of the Union speech has some common characteristics year after year: The President drones on and on, making promises beyond the ability of a mortal to keep. Of course, when this President drones it may mean something else entirely.
Bagley: It's true that the SOTU is political theatre, but it's our political theater and sometimes provides flashes of genuine entertainment, like when that South Carolina congressman shouted "you lie!" or Speaker Boehner sits there looking constipated. Lucky for Marco Rubio, who delivered the same old, hoary, banal, GOP platitudes in the Republican response, he'll instead be remembered for slaking his thirst on national TV.
This time the President laid out a modest agenda that most Americans agree with. Even Republicans think they're great ideas until they find out they're from Obama. Then, suddenly, previously common sense proposals are part of some secret communist/Muslim plot to destroy America.
Lambson: Are you referring, for example, to his proposal to make it illegal to work unless your labor is worth at least $9 to someone?
Bagley: Interesting way of framing a proposal that would make it illegal for an employer to exploit employees. And, yes, according to a 2010 poll, raising the minimum wage to $10 is supported by two thirds of Americans and even a majority of Republicans. But hold on one Kenyan minute! Fox News is alerting us to the fact that a $9 minimum wage is part of Obama's socialist agenda!
Lambson: It is basic economics that when a price is held by fiat above the market-clearing price there will be excess supply. In the labor market we call that unemployment. In agricultural markets we call it a surplus and pay some farmers not to produce it. If you want to artificially raise wages an employment subsidy is more efficient than a minimum wage, but that explicitly shows up as an expenditure in the federal budget. The rhetorical reference to exploitation, an old Marxist term with a precise technical meaning, is not every enlightening here, but raises the question of whether Fox News is far off in this case.
Bagley: Exploitation. It's a perfectly good word with a meaning that predates Marx and Walmart. On a practical level raising the minimum wage to $9 will have little if any effect on unemployment, but a few extra bucks will mean a great deal to those who scrape by in low wage jobs.
Lambson: I don't know what the effect of raising the minimum wage to $9 will be, and neither does Robert Reich. Because the minimum wage is quite low, I suspect the effect of raising it will indeed be small and will mostly apply to middle class high school students. The important issue is more general: the costs of some policies are hidden from view, causing these policies to be adopted when there are better policies available. For example, high minimum wages cause unemployment and can drive much economic activity underground. Wage subsidies and earned income credits don't have these drawbacks, but they must be financed by explicit taxation instead of hidden labor market inefficiencies. I believe the resulting transparency is a good thing, not unlike requiring due process before drones are unleashed on American citizens.
Bagley: It's all academic. Republicans won't let it see the light of day.
Lambson: Pat, I'm a college professor. To me, everything is academic.
Bagley: Last week's Top Comment goes to Handsome_Pete: Ah, the Patriot Act... Bush tested, Obama approved!
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