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3/08/2005

Minimum Wage Votes

Both Kennedy's and Santorum's minimum wage bills came to a vote today, and both were defeated - Kennedy's by a handful of Republican votes, Santorum's by all Democrats present and 17 Republicans. The Santorum bill would have raised the minimum wage by 1.10/hr while "includ[ing] business regulatory relief as well as tax breaks totaling $4.2 billion, most of it directed toward the restaurant industry." As noted by Nathan Newman and EPI, Santorum's bill also included serious anti-worker provisions that would have exempted certain firms and industries from the minimum wage, eliminated overtime pay, and superceded state and local minimum wage laws.

The debate about the bills was illustrative. Senator Mike Enzi (R-Wyo) argued that "wages do not cause sales. Sales are needed to provide wages. Wages do not cause revenue. Revenue drives wages." With what does Senator Enzi believe people buy things?

Sen. John Sununu (R-NH) argued that "when you raise the minimum wage you are pricing some workers out of the market...It is an economic fact, and the proponents of raising the minimum wage like to dismiss this by saying we have a hard time measuring it and the economy is large." Sen. Harkin (D-Iowa) responded that raising the minimum wage was "a values issue. This is at the heart of what kind of country we want," an important argument to be sure. But Harkin's argument is insufficient. Just as the conventional wisdom was long settled that the Social Security system was in crisis, the conventional wisdom has long been that raising the minimum wage has a disemployment effect - that it costs jobs.

Despite Sununu's "economic fact," the real impact of raising the minimum wage on job growth is decidedly muddled. 11 states have higher minimum wages than the federal floor, and 8 of the 11 have experienced faster job growth [PDF] than the national average. David Card and Alan Krueger (American Economic Review, 1994, 84:4, pp.772-793 ) looked at the impact of New Jersey's 1992 state minimum wage increase on employment in the fast-food industry. Compared to Pennsylvania, which tracked the national minimum wage, New Jersey actually experienced faster job growth. David Card also compared the impact of the 1990 minimum wage increase on employment in high wage states to low wage states. Low wage states, where the equilibrium wage would presumably be closer to the minimum, theoretically increasing the disemployment risk, did not suffer slower job growth than high wages states.

An Atlanta Fed article [PDF] came up with some hypotheses that attempt to explain the muddled data without challenging the applicability of neoclassical price theory. Nathan Newman also helpfully compiled reasons that labor markets are different from "normal" commodity markets. Thomas Leonard's The Modern Minimum Wage Controversy and Its Antecedents [PDF] (printed in Backhouse and Biddle, Toward a History of Applied Economics, History of Political Economy, Supp. to Vol. 32, pp. 117-144.) is an excellent look at the professional and institutional obstacles economists face in integrating evidence and theory.

 

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