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Minimum Wage Increase Is Still Bad Policy

Obama RacineFor the past two years, President Obama has proposed raising the federal minimum wage in his State of the Union address. The main arguments for raising the minimum wage have typically ignored economic arguments against it, and relied upon more politically charged arguments. This time around the argument is a bit different because progressives are now using new studies in economics as intellectual ammunition. Shortly before the State of the Union address, 600 economists signed a letter to the president endorsing a raise in minimum wage, citing the new studies. These studies have argued that moderately increasing the minimum wage would have a negligible impact on employment levels.

Obama himself relied on these revisionist economists in his announcement of the executive order: “Just last month, 600 economists, including seven Nobel Prize winners, wrote the leaders of houses of Congress to remind them that the bill before Congress would have little or no negative effect on hiring, on jobs. So it's not going to depress the economy. It will boost the economy.”

The mistake being made by using these studies is that 79 percent economists have not actually changed their longstanding consensus against a high minimum wage, and are skeptical of the new studies. The 600 signatories do not necessarily represent the field as a whole, and their suggestions, as such, should be taken with caution.

Robert P. Murphy, an economist, has offered a very thorough critique of the new “revisionist” studies, as he calls them. One of his main arguments is that, even if we take these new studies at face value, the actual current proposals for increasing the minimum wage do not apply to the studies. The argument within the studies considers a “moderate increase” an increase of 10 percent or less; the president’s actual proposal of $7.25 to $10.10 would be a 39 percent increase. The economists who signed the letter are relying on arguments that compare apples to oranges.

Of course, Murphy goes further in another post to explain how the new studies have yet to change the consensus in economics. The studies are still being digested and critiqued within the field of economics, and are thus not a reliable source for determining the validity of raising the minimum wage.

Furthermore, as my CEI colleague Aloysius Hogan pointed out, Obama’s proposal “would still leave a full-time breadwinner’s family below the poverty line,” contradicting his statement that “…if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.” This is precisely what would occur with the proposed wage increase for the average family with a single breadwinner.

So, although President Obama is within his rights to impose a higher minimum wage on federal contractors through executive order, it remains to be a bad policy for the economy as whole. The president is cherry-picking economic research to defend his position, and Congress should take heed to avoid emulating this policy in the future.