The Right Minimum Wage
A federal minimum wage is an idea whose time came in 1938, when public confidence in markets was at a nadir and the federal government's confidence in itself was at an apogee. This, in spite of the fact that with 19 percent unemployment and the economy contracting by 6.2 percent in 1938, the New Deal's frenetic attempts had failed to end, and perhaps had prolonged, the Depression.
Today, raising the federal minimum wage is a bad idea whose time has come, for two reasons, the first of which is that some Democrats have an evidently incurable disease -- New Deal Nostalgia. Witness Nancy Pelosi's "100 hours" agenda, a genuflection to FDR's 100 Days. Perhaps this nostalgia resonates with the 5 percent of Americans who remember the 1930s.
Second, President Bush has endorsed raising the hourly minimum from $5.15 to $7.25 by the spring of 2009. The Democratic Congress will favor that, and he may reason that vetoing this minor episode of moral grandstanding would not be worth the predictable uproar -- Washington uproar often is inversely proportional to the importance of the occasion for it. Besides, there would be something disproportionate about the president vetoing this feel-good bit of legislative fluff after not vetoing the absurdly expensive 2002 farm bill, or the 2005 highway bill larded with 6,371 earmarks or the anti-constitutional McCain-Feingold speech-rationing bill.
Democrats consider the minimum-wage increase a signature issue. So, consider what it says about them:
Most of the working poor earn more than the minimum wage, and most of the 0.6 percent (479,000 in 2005) of America's wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum lives in families with earnings below the poverty line. Sixty percent work part time, and their average household income is well over $40,000. (The average and median household incomes are $63,344 and $46,326, respectively.)
Forty percent of American workers are salaried. Of the 75.6 million paid by the hour, 1.9 million earn the federal minimum or less, and of these, more than half are under 25 and more than a quarter are between ages 16 and 19. Many are students or other part-time workers. Sixty percent of those earning the federal minimum or less work in restaurants and bars and earn tips -- often untaxed, perhaps -- in addition to wages. Two-thirds of those earning the federal minimum today will, a year from now, have been promoted and be earning 10 percent more. Raising the minimum wage predictably makes work more attractive relative to school for some teenagers and raises the dropout rate. Two scholars report that in states that allow people to leave school before 18, a 10 percent increase in the state minimum wage caused teenage school enrollment to drop 2 percent.
The federal minimum wage has not been raised since 1997, so 29 states with 70 percent of the nation's workforce have set minimum wages between $6.15 and $7.93 an hour. Because aging liberals, clinging to the moral clarities of their youth, also have Sixties Nostalgia, they are suspicious of states' rights. But regarding minimum wages, many have become Brandeisians, invoking Justice Louis Brandeis's thought about states being laboratories of democracy.
But wait. Ronald Blackwell, the AFL-CIO's chief economist, tells the New York Times that state minimum-wage differences entice companies to shift jobs to lower-wage states. So: States' rights are bad, after all, at least concerning -- let's use liberalism's highest encomium -- diversity of economic policies.
The problem is that demand for almost everything is elastic: When the price of something goes up, demand for it goes down. Obviously were the minimum wage to jump to, say, $15 an hour, that would cause significant unemployment among persons just reaching for the bottom rung of the ladder of upward mobility. But suppose those scholars are correct who say that when the minimum wage is low and is increased slowly -- proposed legislation would take it to $7.25 in three steps -- the negative impact on employment is negligible. Still, because there are large differences among states' costs of living and the nature of their economies, Sen. Jim DeMint (R-S.C.) sensibly suggests that each state be allowed to set a lower minimum.
But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities' prices. Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly. But that is a good idea whose time will never come again.