Arguments For and Against Higher Minimum Wage

Higher Minimum Wage Ballots Are In Six States This November 7

 “Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius -- and a lot of courage -- to move in the opposite direction.” - E. F. Schumacher 

My old Economics 110 textbook then is pure genius. It shows a simple graph (see chart) that if wages are artificially raised, there is a resulting big, ugly gap – a discrepency in the market between labor demanded and labor supplied. Unemployment goes up.

If wages were regulated upwards, franchise owners would have higher payroll expenditures and would lower head count to maintain profitability. In other words, such legislation would increase the people placed out of work.

The International Franchise Association seems to agree with that model. They are asking for support to vote down these minimum wage initiatives in Arizona, Colorado, Missouri, Montana, Nevada and Ohio. The IFA declares authoratatively, “Such measures [raising minimum wage], if passed, could be very detrimental for all businesses in those states for years to come.”

Brighter minds than mine argue that things are more complex. On the radio show Marketplace (audio: 2 min), Matt Fellowes reminds us of the reality that not many people earn minimum wage. Many franchise owners already are paying over minimum wage to fill positions. Much of these wages are discretionary income for teenagers living in homes well above the poverty line.

A conservative news magazine The Economist ($$) writes that my old Economics graph may not be entirely correct:

 “The Economic Policy Institute (EPI), a left-wing think-tank, recently published a letter signed by over 650 economists, including five Nobel prizewinners, which advocated a rise… A series of studies in the 1990s—including a famous analysis of fast-food restaurants in New Jersey and Pennsylvania by David Card at Berkeley and Alan Krueger of Princeton University—challenged that consensus [of increasing unemployment by raising minimum-wage], finding evidence that employment in fast-food restaurants actually rose after a minimum-wage hike.”

Five Nobel prize winners and 650 economists publishing and arguing against my old economic textbook? Wow. The Economist also points out that there are a considerable number of arguments and studies that disagree, but it continues:

Today's consensus, insofar as there is one, seems to be that raising minimum wages has minor negative effects at worst. Lawrence Katz, an economist at Harvard University and signatory of the EPI's letter, agrees that “most reasonably well-done estimates show small negative effects on employment among teenagers”.

It concludes that at best raising the minimum wage is a blunt instrument in reducing poverty.