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Nobel Laureate Edmund Phelps opposes minimum wage

There's a saying that the most revealing part of Academy Awards speeches is who isn't thanked. There is often a similar truism about policy documents signed by economists. This should be kept in mind with Wednesday's statement released by the union-backed Economic Policy Institute that boasted the signatures of more than 600 economists, including 5 Nobel Laureates. The statement read, “We believe that a modest increase in the minimum wage would improve that well-being of low-wage workers and would not have the adverse effects that critics have claimed.” The “critics” referred to are the bulk of economists who dominate the profession. As Bloomberg noted in August, “prominent economists of all ideological persuasions” long opposed the minimum wage based on studies finding that it retards “job growth, creating unintended hardship for those at the bottom of the ladder.” In the 1990s a single, controversial study gave cover to some liberal economists to defend the minimum wage and some increases to it. But it is notable that two of the prominent signers of the statement, Joseph Stiglitz and Alan Blinder, changed firmly held convictions during the time they held government posts in the Clinton administration. And there is one especially notable omission from the list of signers. There is no signature from Columbia University's Edmund Phelps, who this week was awarded the 2006 Nobel Prize for Economics. This is because Phelps has long been a vocal opponent of the minimum wage. In May of this year, Phelps wrote that “minimum wage laws make them [less qualified workers] unaffordable to law-abiding employers.” The Associated Press article about his receiving the Nobel even made note of Phelps' opposition in a paragraph. And Phelps' opposition is all the more noteworthy given the fact that, as I observed in and op-ed for Investor's Business Daily, Phelps is not a “stalwart free-marketeer.” He opposed President Bush's 2001 cuts in income tax rates, and his work has been praised by EPI statement signer Stiglitz. In fact, in the essay he wrote this year expressing his opposition to the minimum wage, Phelps outlined the wage subsidy program that he has developed in the past few years. The subsidy was examined by David Gordon of the Mises Institute, who disputed aspects of Phelps' program but suggested that the subsidy could be a good idea if done in the form of a payroll tax cut. From the CEI Center for Entrepreneurship's perspective, Phelps is certainly far from perfect on the so-called “macroeconomic” issues such as taxes. But his smart criticisms of many aspects of the regulatory state — as I noted in the Investor's op-ed, he has also dissed Sarbanes-Oxley -- makes his a welcome voice in the national debate.