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.