Posted by Tina
A few days ago National Review reported on a Senate Committee hearing in which Elizabeth Warren asserted her view that the minimum wage should be raised to keep up with inflation:
In a hearing of the Senate Committee on Health, Education, Labor and Pensions last week on “indexing the minimum wage,” Massachusetts senator Elizabeth Warren inquired of University of Massachusetts professor economics Arindrajit Dube, “If we started in 1960, and we said that, as productivity goes up — that is, as workers are producing more — then the minimum wage is going to go up the same. And, if that were the case, the minimum wage today would be about $22 an hour. So, my question, Mr. Dube, is what happened to the other $14.75?”
In the president’s State of the Union address, he proposed raising the minimum wage from its current rate of $7.25 an hour to $9. The former head of President Obama’s Council of Economic Advisers, Christina Romer, has since taken to the pages of the New York Times to express her opposition to the proposal, which she argues “tends to be more popular with the general public than with economists.”
Her academic (emotional) approach to business and the economy is illustrative of the ignorance that colors public policy.
Michael Salstman of Politico:
An increase in someone’s hourly wage won’t translate to an increase in their annual take-home pay if they lose hours or employment as a result. That’s exactly what’s happening: Employers who keep just 2 cents to 3 cents in profit from each sales dollar (think: restaurants or grocery stores) can’t just absorb a 39 percent hike in labor costs. They either have to raise prices, or — more likely, given their cost-conscious customer base — find a way to provide the same product with less service.
This means fewer hours of work and fewer opportunities for less skilled groups like teens, who already face a 25 percent unemployment rate. That’s why a new Employment Policies Institute analysis of Census Bureau data finds that roughly 988,000 jobs would be lost because of the Harkin/Miller proposal, with 30 percent of the lost jobs occurring in the retail industry and 29 percent occurring in accommodations and food service.Harkin, Miller and Obama have directed legislators concerned about such consequences to a comforting study authored by economists affiliated with UC Berkeley. (One of them, Dr. Arindrajit Dube, is scheduled to testify at Thursday’s hearing.) Their study claims that, contrary to the vast majority of published economic literature on this issue, wage mandates do not reduce employment.
As the saying goes, if it sounds too good to be true, it probably is. The work of Dube and his co-authors received a devastating reply from a team of economists at the University of California-Irvine and the Federal Reserve Board. (It’s available now via the National Bureau of Economic Research.) Having analyzed and rechecked all the analysis in the original Berkeley studies, these economists determined that “neither the conclusions … nor the methods they use are supported by the data.”
They could, of course, ask business owners whose businesses would be affected adversely by this move…businesses that are more likely to have entry level employees…but that would be too easy.