“The Wages Are Too Damn Low”: Hiking The Minimum Wage Has Little Or No Adverse Effect On Employment
As I mentioned in the lunch link roundup, increasing the minimum wage is all the rage in lefty precincts today. DC is considering a raise, and Democrats generally are smelling a winning issue. (For a deeper look, Arindrajit Dube had a long piece on it over the weekend.)
Conventional economists tend to despise minimum wage laws, because they’re a form of price control, and that gives The Market a sad. Setting a minimum price of labor, according to Econ 101, should increase unemployment, because some people won’t have a marginal product above the wage floor. But as Paul Krugman pointed out in his column this morning, the evidence just doesn’t support this conclusion:
Still, even if international competition isn’t an issue, can we really help workers simply by legislating a higher wage? Doesn’t that violate the law of supply and demand? Won’t the market gods smite us with their invisible hand? 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, while significantly increasing workers’ earnings.
It’s important to understand how good this evidence is. Normally, economic analysis is handicapped by the absence of controlled experiments. For example, we can look at what happened to the U.S. economy after the Obama stimulus went into effect, but we can’t observe an alternative universe in which there was no stimulus, and compare the results.
When it comes to the minimum wage, however, we have a number of cases in which a state raised its own minimum wage while a neighboring state did not. If there were anything to the notion that minimum wage increases have big negative effects on employment, that result should show up in state-to-state comparisons. It doesn’t.
As others have noted, there’s good reason to believe that increased wages at large businesses would work out well for the businesses themselves. Businesses would both reduce turnover—the hiring process is expensive, and there is a great deal of churn at the bottom of the labor market—and increase their employees purchasing power, a hefty fraction of which would likely be spent at their own place of employment or somewhere similar. I’d guess that wages are held down out of class panic and a desire for increased profits for their own sake rather than some strict business reason.
Personally, if I had to choose, I would rather see more broad-based economic stimulus through fiscal and monetary action rather than a minimum wage hike. (Though I would still support one on its own merits.) But if they don’t like it, American elites have no one to blame for this but themselves. If the power structure can’t ensure full employment through normal channels, then demands for economic justice through more easily-understood channels will only become more common.
By: Ryan Cooper, Washington Monthly Political Animal, December 2, 2013
“Truly Transformative”: Why The Stimulus Made America Better Off Four Years Later
President Barack Obama signed the American Recovery and Reinvestment Act on February 17, 2009, with the hopes of jump-starting a depressed U.S. economy and initiating his agenda for healthcare, energy, and education. Larger in constant dollars than President Franklin Delano Roosevelt’s New Deal, Obama’s stimulus is one of the most misunderstood pieces of legislation in U.S. history, says Time journalist Michael Grunwald. The author of The New New Deal: The Hidden Story of Change in the Obama Era recently spoke to U.S. News about why Republicans were so successful in their campaign against the bill, and why Americans don’t understand how truly transformative it was. Excerpts:
Why did Obama pursue the Recovery Act?
The economy had fallen off a cliff, and in the past, this idea that when the private sector shuts down, the public sector needs to step up was totally uncontroversial. Bush had passed a stimulus bill with overwhelming bipartisan support when the economy started to go soft in 2008. All the Republican and Democratic presidential candidates had their own stimulus plans in 2008. Mitt Romney’s was actually the largest. And House Republicans, including Paul Ryan, voted in 2009 for a $715 billion alternative to the stimulus that was quite similar to President Obama’s $787 billion stimulus. It was never really clear how the Republican plan could be good public policy and how Obama’s pretty similar policy was radical socialism.
While the Recovery Act was partly about recovery, it was also really the purest distillation of what Obama meant when he talked about change we can believe in, in terms of transforming energy, starting to reduce healthcare costs, reforming education with things like Race to the Top, and then the largest infrastructure investments, the largest middle-class tax cuts since Reagan, the largest research investments ever. That’s the new New Deal.
Why does the stimulus have such a bad rap?
First, you have to say that the Republicans did a brilliant job of completely distorting the substance of the bill. They turned this into an $800 billion boondoggle that was full of levitating trains to Disneyland and mob museums and snow-making machines in Duluth and all kinds of nonsense that wasn’t actually in the bill. They’ve been very disciplined and unified in portraying this as just a big mess. This thing was just hard to sell at a time when the financial earthquake had hit but the economic tsunami hadn’t reached the shore. It wasn’t like when FDR took office after three years of depression, so everybody knew it was Hoover’s depression. But Obama took office during a freefall, and January 2009 was the worst month for job losses. And then he passed the stimulus, and then the next quarter was the biggest jobs improvement in 30 years, but it improved from absolutely hideous to just bad, and it’s hard to sell a jobs bill when the job situation is bad.
What was the value of programs that weren’t necessarily shovel-ready?
After a financial meltdown, the recoveries are always going to be long and slow. That’s one reason the money was spread out over several years. Right up front they wrote big checks to states to help governors balance their budgets without doing mass layoffs of public employees and mass cutbacks of Medicaid spending on the poor. Tax cuts went out quickly to get money into people’s pockets. So all that stuff was obviously shovel-ready; you just shovel the money out the door. Then you had some stuff that really wasn’t supposed to be all that shovel-ready at all, like building the world’s largest wind farm or bringing our pen-and-paper healthcare system into the digital age, or building high-speed rail lines. It was always understood that those were going to take longer. The idea was that even if it wasn’t shovel-ready, it was shovel-worthy.
How are Republicans using the stimulus against President Obama?
Republicans had always supported stimulus up until January 20, 2009, and most of what’s in the stimulus were things that had always enjoyed plenty of bipartisan support. Highway spending and unemployment benefits and middle-class tax cuts and even clean energy, but of course Republicans had decided before that that they were in absolute lock-step opposition. They couldn’t have clean bipartisan support. They had to portray him as a radical partisan.
Why should Mitt Romney read this book?
What Republicans can learn from this is that a lot of the things they’ve been trashing as big government nonsense have actually had an effect.
Are Americans better off than they were four years ago?
I think the answer is yes. What people forget is just how catastrophic our situation was four years ago. Gaining 150,000 jobs isn’t that great, but it’s way better than losing 800,000. And that’s always going to be the difficulty for Obama: selling the notion that things could have been worse, and that things were worse.
By: Teresa Welsh, U. S. News and World Report, September 7, 2012
Rick Santorum Cashes In On The Very Tax Credit He Claims To Hate
Rick Santorum regularly knocks the stimulus bill that the Democratic Congress passed, and President Obama signed into law, back in early 2009. The American Recovery and Reinvestment Act “cost American jobs,” he told CNN last July. But that didn’t stop Santorum from claiming a tax credit for home efficiency funded through the stimulus plan that year.
According to his 2009 tax form, which was released last week, Santorum claimed a $3,151 expenditure on new exterior windows and skylights, one of the “qualified energy efficiency improvements” for homes that was granted a tax credit through the stimulus bill. The stimulus bill revived a tax credit that had expired at the end of 2007 and increased the amount of money homeowners could claim. This allowed the Santorum family to knock $945 off their taxes.
The purpose of the tax credit was to help homeowners save money by using less energy, while at the some time generating fewer emissions. But the efficient choices can often cost more upfront—hence the desire to create a tax credit to incentivize that kind of expensive upgrade. The measure was also intended to benefit the manufacturing and construction industries by creating more opportunities for them to make and install the windows and other efficient products.
Santorum has made attacking the Obama administration’s energy and environmental policies a prime plank in his platform, implying just last week that the president is some kind of dirt-worshiping hippie aligned with “radical environmentalists.” He’s also used his position on the subject as a way to distance himself from rival Mitt Romney, who has at times shown sympathy for protecting the environment.
“Who would be the better person to go after the Obama administration on trying to control the energy and manufacturing sector of our economy and trying to dictate to you what lights to turn on and what car to drive?” Santorum told the crowd at the Conservative Political Action Conference earlier this month. “Would it be someone who bought into man-made global warming and imposed the first carbon cap in the state of Massachusetts, the first state to do so in the country?”
Despite the major boost that the stimulus bill gave to the manufacturing sector, Santorum has accused Obama of “talk[ing] about how he’s going to help manufacturing, after he systematically destroyed it.” The stimulus is also one of the many things Santorum targets when he criticizes Obama’s “radical agenda.” “We’re not like the liberals. Every time we see a problem, we don’t have to find a government program to fix it,” Santorum said on the campaign trail in Michigan this week. “We encourage others to fix it without the government’s heavy hand.”
Santorum has also said he thinks that “all subsidies to energy should be eliminated.” He doesn’t, however, seem to have a great grasp on what those subsidies are, as he also claims that “there are not a lot of them” to eliminate—when in fact we provide about $20 billion worth every year. Nor did he comment on whether the tax credit he claimed just a few years ago would qualify as one.
By: Kate Sheppard, Mother Jones, February 24, 2012
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 
