Christina Romer, former Chair of the Council of Economic Advisors and economic professor at UC Berkeley, wrote a piece in the Sunday New York Times this week arguing that the minimum wage increase, despite it’s public popularity, is ill-advised economic policy. She argues that minimum wage increases are either not needed or not effective in improving economic well-being. She says that a competitive economy with low unemployment (i.e. not the economy we live in… which she doesn’t admit) ensures that workers are paid their fair share. She asserts increases in minimum wage could be passed through in the form of higher consumer prices and the increase wouldn’t actually help out poor people that much, among other typical arguments why it is not effective. She writes, “some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.” She says that other policies, like an increased earned income tax credit (EITC) would be more effective.
Sigh, well that’s annoying. Most people on the advocacy-side who have campaigned for a minimum wage increase couple it with an increase in EITC benefits. But it doesn’t help the case to downplay the real quality of life improvements that can accompany a rise in income of $3,500 for a worker who brings in 20 grand a year. Still, the worst part of that argument is her dismissal of the employer collusion to keep wages low – you don’t need a company town for firms to put downward pressure on wages. The nerve of this lady to make the argument that competition for workers will push wages up when there are 12 million unemployed and another 10 million underemployed in the economy. Finally, the statement that a higher minimum will just cause firms to replace less-productive low-income workers with more productive middle class workers is pretty offensive. If richer people are more productive it’s because they have better opportunities to invest in their human capital – health care, education, social networks. What would give those opportunities to low-income workers? Higher wages. Duh.