Should we extend unemployment insurance — and cut the minimum wage?


Would it be better to cut the minimum wage and extend UI for these jobless Americans? (Mark Ralston/AFP/Getty Images)

The political divide in the nation's debate over how best to repair the economy has a tendency to create neat categories. For example, Republicans favor less government intervention and regulation, and Democrats favor more. Republicans have opposed an extension of emergency unemployment insurance, which expired at the end of the year, and also have rejected a hike the minimum wage. They worry that expanded UI would discourage work and the higher minimum wage would discourage hiring. By contrast, Democrats tend to argue that unemployment insurance helps Americans make ends meet while searching for a job, and a higher minimum wage simply ensures that workers are compensated fairly.

That's why Michael Strain, a resident scholar at the right-leaning American Enterprise Institute, occupies an interesting place in today's discussion. He favors extending emergency unemployment insurance but opposes raising the minimum wage. He argues that, in some cases, you might even want to cut the minimum wage -- while offering workers more government aid.

Strain says his views are motivated by a desire to maximize employment. In the case of extending unemployment insurance, he says, the key is to treat people fairly after they were hit by a massive recession and to keep them connected to the labor force and searching for jobs.


"If you look at the economy, the labor market is really bad," Strain says. "If you look at the long-term unemployment rate in the past five or six recessions, you see it's significantly lower when we let benefits expire. Just a simple read of the labor market shows it's too early to let benefits expire."

Strain acknowledges the concern that offering extended UI can lead some of the jobless to be a bit more choosy in deciding where to apply for work -- and that, in that case, if UI disappears, then those unemployed workers might wind up taking jobs they otherwise wouldn't have taken.

But the bigger concern, he says, is that people will give up searching for work.

"I think the research shows that a large share of the long-term unemployed won't take a job when their benefits expire, and instead they’ll just leave the workforce," he says. "These folks just happen to be alive and working in a once-in-a-generation financial  crisis, and I think society should come together through government and give these folks the best shots possible at staying in the labor force and living the life they want to lead."

Strain sounds just like a Democrat ... that is, until you hear him talk about the minimum wage.

"I think that you’ve got to ask yourself what are the costs and what are the benefits. I am of the opinion that if we were to raise the minimum wage to $10.10 an hour, that would cost jobs," he says, referring to the new Congressional Budget Office report finding that an increase would cost about 500,000 jobs but also acknowledging the debate among economists on this point.

"In a labor market as bad as ours is, you should weigh on the side of caution," Strain says. "With 20 percent youth unemployment and high unemployment among uneducated workers, this is something risky to do."

Strain goes so far as to say that the government might consider cutting the minimum wage to $4 (from the current $7.25) for some populations, especially the long-term unemployed. That would make it cheaper for companies to hire them. But he's not suggesting that such a wage be the total income that a worker gets. He'd supplement the $4 minimum wage with a $4 wage subsidy from the government. (He'd pay for it by closing tax breaks that favor the wealthy.)

As he sees it, his plan would lead to higher employment -- and higher incomes.

"I think the common thread in both opinions," he says, "is: What’s the answer that will have society coming together through government and supporting people’s aspirations to work and at the same time having as little bad effects on the labor market as possible?"

Zachary A. Goldfarb is a staff writer covering the White House, focusing on President Obama’s economic, financial and fiscal policy.
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