Politics & Policy

No Minimum-Wage Free Lunch

If there is a single lesson that the Obama administration is committed to not learning, it is that economics involves tradeoffs. A recent report from the Congressional Budget Office contains what the administration must surely receive as good news: Its plan to raise the minimum wage to the Democrats’ new target of $10.10 could lift as many as 900,000 Americans out of poverty. The bad news is that it would cast 500,000 American into unemployment by eliminating their jobs.

In December, the president claimed that there is “no solid evidence” that raising the minimum wage costs jobs, an assessment that the Washington Post’s fact-check column awarded two Pinocchios. The president, the Post concluded, was “dismissing the research and findings of a significant part of the economic academy,” that being the not-entirely-controversial claim that buyers buy less of a good when the price goes up. But the president has not been alone in this claim: Joe Sestak argued that we could raise the minimum wage beyond $10.10 “and people would not lose their jobs.” Paul Krugman smugly dismissed these fears in the pages of the New York Times: “The answer is that we have a lot of evidence on what happens when you raise the minimum wage. And the evidence is overwhelmingly positive: hiking the minimum wage has little or no adverse effect on employment.” The New York Times editorial board joined in: “The weight of the evidence shows that increases in the minimum wage have lifted pay without hurting employment.” MSNBC’s Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, accused those critical of the proposed pay hike of ignoring the “evidence.”

CBO estimates are considered the gold standard for policy analysis — when they suit Democrats’ rhetorical needs. For example, the CBO dutifully produced reports showing that, if enacted precisely as written, the Affordable Care Act would reduce deficits — even as the CBO emphasized the unlikelihood of that outcome. Nonetheless, Obamacare critics were pounded over the head with the CBO estimate by such abject apologists as Ezra Klein, late of the Washington Post. Now the Democrats are in a pickle: They can dismiss the estimates of the CBO, which they have relied upon for so much support, or they can say that they do not give a fig about the half-million Americans that the Obama administration’s preferred policy would throw out of work. Mr. Klein, to his credit, has in the past acknowledged the relationship between the price of labor and the demand for labor: In his estimate, throwing low-income people out of work is worth it.

Presidential aide and White House tweeter-in-chief Dan Pfeiffer offered his characteristic dime-deep insight, writing: “The logical extension of the GOP position on today’s CBO report would be to call for lowering the minimum wage.” But that is in fact the tradeoff: Demand curves point south. You can have higher demand and lower prices or lower demand and higher prices. Stamp your feet all you like, you can’t stamp out supply and demand. The logical extension of this insight is not to lower the minimum wage, but to abolish it. The federal minimum wage is merely a statutory floor; the real minimum wage, which already is collected by our millions upon millions of unemployed and will be collected by a half-million more should the Democrats get their way, is $0.00. That’s what unemployment pays.

The stagnant wages of low-income and middle-class Americans are a national scandal, but the solution to it must be an economic one rather than a political one. Americans who are not bound for law school and high-tech jobs need a different and better model of education; the Democrats stop their having it. They do not need the importation of millions of largely uneducated and low-skilled workers from abroad; the Democrats insist upon it. (And so do a number of dangerously wrongheaded Chamber of Commerce Republicans.) American workers need massive capital investment to raise the value of their labor; Democrats desire to tax it. Economic reality is non-negotiable, and passing a law against awful job markets and the wages associated with them will not make that reality go away.


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