My response to the San Antonio Express-News on minimum wage laws

I just sent this to the paper. If it does get printed it might take a week or so.

"Last month an Express-News editorial advocated an increase in the minimum wage ("Minimum wage frozen at intolerable,” July 25). This was based on a report that said states that increased their minimum wage added more jobs than those that didn't raise minimum pay over a six month period.

Now that report has been challenged by two economics students from George Mason University, Liya Palagashvili and Rachel Mace, as reported last week in The Wall Street Journal.

The Express-News editorial implied that a higher wage for the targeted workers will lead to more spending, spurring economic growth and leading to more jobs.

But Palagashvili and Mace say that this is just 2% of the workforce and it will therefore have an insignificant effect. That is a point that Christina Romer, Obama’s first chief economic advisor, has also made

They also found of the 3 states that raised the minimum wage the most, the job growth was lowest among all states that raised the rate.

  

In fact, those three states, Connecticut, New Jersey and New York, had a lower rate of job growth than the 37 states that did not raise the rate. And “in New Jersey, the state that hiked minimum wage the most—to $8.25 an hour from $7.25—employment actually fell by about 0.56%.”

A statistical test they did showed that there was no significant difference in job growth between the states that raised the minimum wage and those that did not. It is also true that 9 of the 13 states simply adjusted their minimum wage for inflation, so the increases were very slight and therefore not meaningful.

Texas simply goes by the federal minimum wage. Yet since December 2007 Texas has added 1.3 million jobs while all other states combined have 1.23 million fewer jobs. That seems like a much better test than just six months.

Christina Romer has also pointed out that a higher minimum wage might force businesses to require job applicants to have experience. This means that the unskilled cannot get jobs.

What happens to them then? Research by economists Andrew Beauchamp and Stacey Chan of Boston College suggests that many of those workers turn to crime. Policies like minimum wage laws often have these unintended and unwanted consequences.

It is usually retail outlets and fast food restaurants that are affected by the law. Yet those are very competitive industries. Individual firms cannot afford to pay workers less than they are worth since those workers can always find other companies to work for. Again, this is a point made by Christina Romer.

A minimum wage is paid for by either the customers, the firm (including any stock holders) or both. If you don't eat at McDonalds or own stock in McDonalds, you don't have to contribute to this government anti-poverty program. Ideally, we should all have to pay to fight poverty.

Romer advocates expanding the Earned Income Tax Credit. Greg Mankiw, one of George W. Bush's chief economic advisors, agrees.

Economist Richard V. Burkhauser of Cornell University has shown that "only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households." So it is not even a good anti-poverty tool.

What workers need is a growing economy. In booming North Dakota, you can start at $17 per hour at the nation's busiest Wal-Mart in Williston."