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Why we should stop talking about the minimum wage -- or maybe why we shouldn't

Barbara Kiviat notes that the minimum wage doesn't help that many workers or affect that many employers. So why is it so central to our economic thinking?

Talking about the minimum wage — whether you want to increase it or abolish it — is a proxy for saying "I care about struggling workers," or "I don't want government telling business what to do."

The problem with using the minimum wage to have this debate, though, is that no matter who wins, the victory will be hollow. If we want to help low-income families, we could do a lot more than change a wage many of them don't make anyway. And if we want to minimize government intervention in free enterprise, we might choose a battle that is meaningful to companies outside of such a narrow range — half of all minimum-wage workers have jobs in the leisure and hospitality industries.

Although maybe saying that just goes to show how naive I am about politics. Maybe in that realm the best battles to fight are the ones that are the least likely to change the status quo no matter what the outcome is.

By Ezra Klein  | October 21, 2010; 11:16 AM ET
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Ms. Kiviat is right, but doesn't go far enough. Minimum wage is in part a proxy for saying "I care about struggling workers", but it's even more a proxy for saying, "I care about struggling young workers who are the future of America". Young workers make up a plurality of people who earn minimum wage, so any fight about minimum wage affects them the most.

Posted by: bk003h | October 21, 2010 12:33 PM | Report abuse

Ms. Kiviat is wrong. Really, how far from the ground do you have to be to not realize that?

Minimum wage is a significant factor in retail and service sector wages (particularly in rural areas) even though most employees in those huge sectors make more than minimum. Actual wages are still relative to the minimum. When the minimum wage is raised, it tends to raise wages above it as well.

But what gets lost is the other end of minimum or low wages. Remember, people who make minimum wage tend to spend every dime they make. Higher low-end wages go directly into the economy.

As a retailer myself I benefit directly from a higher minimum wage, which means more to me than the cost of wages.

Not too long ago I worked in Lewiston, Idaho which is directly across from Clarkston, Washington. Idaho's minimum wage was the federal minimum and Washington's was a couple of bucks more per hour. There is a McDonald's in both towns. And guess what: the Happy Meals are the same price in both towns. It's just that the entry level burger flipper makes more in Washington. What I asked myself at the time was, which is a better place to sell stuff to that burger flipper?

Posted by: pmcgann | October 21, 2010 1:50 PM | Report abuse

Wrong in multiple ways. It completely ignores the people that aren't able to provide as much value as the minimum wage offers (young people, for example). If we look at competition between states for example, there is less variance and more mobility between states than between countries. Between countries there is more variance and weak mobility. Just look at the Central Americans desperate to come here to earn less than the minimum wage in many cases. Look at the difference between wages here and in China and India. If wages are not the key issue comparative advantage driving their growth, I don't know what is.

Second, the real minimum wage is growing with the ACA, ultimately adding more unemployment pressure to the economy.

Posted by: staticvars | October 21, 2010 2:07 PM | Report abuse

I think both sides overstate their effect. The min wage gives a minimal ground rule on how business can compete against each other nationwide. On the flip side if raising the min wage was all it took to eliminate povery why not make the minimum wage 250,000.

Posted by: Jenga918 | October 21, 2010 2:11 PM | Report abuse

--*[W]hy is it so central to our economic thinking?*--

It's a microcosm, Klein. You think you can create value via government fiat, which is nonsense, but even were it true, it's still immoral because neither Valley Girls with poly-sci degrees nor Harvard hack/community organizers have a right to stick their noses in business that isn't theirs.

Posted by: msoja | October 21, 2010 2:19 PM | Report abuse

It seems the thread is trying to prove Ms. Kiviat right after all. But here in Sarah Palin's America, the minimum wage is real ... and prevalent.

And I am stunned to learn y'all don't realize that.

Posted by: pmcgann | October 21, 2010 2:43 PM | Report abuse

"And guess what: the Happy Meals are the same price in both towns. It's just that the entry level burger flipper makes more in Washington."


But some burger flippers aren't flipping any burgers either.

Take a look at the teenage employment to population rate over time.

The proportion of teenagers employed in the 1980s (44.7%) was a good deal higher than in the 1960s (40.2%). The average unemployment rate in the 1980s was 7.3%, vs. 4.8% for the 1960s. This is despite having a larger immigrant population in the 1980s.

The real minimum wage was high and rising in the 1960s, while low and falling in the 1980s.

Ah, but the teenage employment rate was low in the mid 2000s despite a modest and falling minimum wage. What happened here?

"The share of U.S.-born teenagers (16 to 19) in the labor force — working or looking for work — during the summer has been declining for more than a decade, long before the current recession. In 1994, nearly two-thirds of U.S.-born teenagers were in the summer labor force; by 2007 it was less than half. At the same time, the overall number of immigrants (legal and illegal) holding a job doubled. The evidence indicates that immigration accounts for a significant share of the decline in teen labor force participation."

Teenagers can't compete against immigrants on quality (skills/work ethic), nor on price (especially in the case of illegals that can under bid the minimum wage). Of course if prices are flexible, more of the competitors win the game (find a job).

"The decline in teen work is worrisome because research shows that those who do not hold jobs as teenagers often fail to develop the work habits necessary to function in the labor market, creating significant negative consequences for them later in life."

Which makes me consider this from bk003h:

"Young workers make up a plurality of people who earn minimum wage, so any fight about minimum wage affects them the most."

Certainly does.

But immigrants at the end of the day are just people trying to earn a living, and what right do we have to arbitrarily favor a suburban teenager over a poor immigrant from, say, Haiti?

But we don't have to play favorites. If we simply let people work at a price they agree upon, more will surely be working without us having to lift a finger.

"What I asked myself at the time was, which is a better place to sell stuff to that burger flipper?"

Which is a better place to sell stuff to the burger joint's owner? Or manager? Or to the erstwhile burger flipper who is out of a job?

The money for your burger flipper isn't coming from a money tree. There is a seen (burger flipper making more) and unseen (others earning less) consequence to the minimum wage.

Posted by: justin84 | October 21, 2010 3:13 PM | Report abuse

Minimum wage earners abound -- particularly in the retail and hospitality sectors: in fact, most restaurants couldn't survive without the sub-minimum wage ($2.13/hr). Larger restaurants are now burdened with the requirements of the Obama/Pelosi PPACA and must dismiss some workers in order to pay the rest.

Perhaps the US will soon follow the lead of the UK and Germany and begin to cut wasteful social programs, reduce government spending, and free citizens from burdensome government regulation like the PPACA and the Fair Labor Standards Act (FLSA).

Posted by: frodo23 | October 21, 2010 4:25 PM | Report abuse

pmcgann has it exactly right. That's why FDR did it, to everyone's benefit long-term and short-term. And why subsequent reductions in the real minimum wage (especially under Reagan) were ill-advised. We probably should be discussing another raise in the minimum wage and other ways to boost wage income at the lower end--rather than at the upper end. However, we must address unemployment first and foremost, and I'm not confident that we are smart enough to address both problems at the same time.

Posted by: pjro | October 21, 2010 4:35 PM | Report abuse

"We probably should be discussing another raise in the minimum wage and other ways to boost wage income at the lower end"

Teen employment is lower than it has been since LBJ, and you want to price more of 'em out of work? Unskilled labor is having depression rates of unemployment, and you want to price more of them out of work too?

Anyway, go open a business and pay your workers whatever you see fit. What other people pay their workers isn't your business nor is it mine.

Posted by: justin84 | October 21, 2010 6:45 PM | Report abuse

Well here is my spin on any mandated minium wage. It is always put forth as a govt. protection to help workers from extremely low wages but to me it is a wolf in sheeps clothing assuring cheap labor costs. Perhaps without putting that start rate in govt control in time the market would bring wages in fair realms. If you really want fairness try looking at the gorged amts charged in the housing sectors!

Posted by: EJAMEST | October 25, 2010 9:39 AM | Report abuse

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