The Daily Item, Sunbury, PA

Politics

April 5, 2013

5 myths about minimum wage

(Continued)

2. The minimum wage stays the same if Congress doesn't change it.

Congress sets the minimum wage in nominal dollars, so it doesn't keep pace with inflation. Because the cost of living is always rising, the value of a new minimum wage begins to fall from the moment it is set. In fact, today's minimum wage of $7.25 buys less than the minimum wage did through all of the 1960s, 1970s and much of the 1980s. Raising the minimum wage to $9 an hour in 2015 would give us about the same real value as the $3.35 minimum wage of 1981.

Although the minimum wage has been raised 22 times since it was established, those increases are needed to restore its inflation-eroded value back to its earlier real level. Every time Congress debates raising the minimum wage, it is simply rehashing an old debate: Do we want the same policy today that we had last time the minimum wage was raised? Instead, Congress should set an inflation-adjusted or -indexed minimum wage. It would not only be more fair to workers but efficient for government.

3. Raising the minimum wage increases unemployment.

In a perfectly competitive market, anything that raises the wage above a level at which the supply of workers equals the demand for them will create unemployment. But a perfectly competitive labor market requires that neither workers nor firms have bargaining power; that everyone has all the necessary information; that workers are a commodity, rather than different people with different skills and a need to be motivated; and that there are no frictions preventing supply from matching demand.

Although everyone I know who teaches introductory economics presents this model to students, few believe that it describes the real world. In fact, in a survey of 40 leading economists through the Initiative on Global Markets, a diverse group including both prominent liberals and conservatives, only about a third agreed that raising the minimum wage would make it harder for low-skilled workers to find employment. Because only about one in 10 thought the costs of hiring probably would be bigger than the benefits of higher wages for low-skilled workers, even that number overstates how concerned these economists are about the potential negative effects of raising the minimum wage.

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