walter russell mead peter berger lilia shevtsova adam garfinkle andrew a. michta
Published on: March 5, 2013
The Minimum Wage Explained

There is a rare gem in Sunday’s New York Times in the business section.  Former chair of the Council of Economic Advisers, Dr. Christina Romer, has provided a balanced honest, accurate and concise summary of the arguments concerning the minimum wage. Given that a significant rise in the minimum wage was one of President Obama’s main initiatives in his recent State of the Union Address, this brief analysis should command a wide audience.

Two qualities of this essay particularly commend it.

First, as Dr. Romer identifies the several economic effects of the minimum wage, she takes care to estimate their relative magnitude. Yes, a rise in the minimum wage will produce unemployment, it will produce higher prices as business businesses pass higher labor costs on to consumers, and it will therefore conduce to inflation—but how much, compared to the redistributional benefits it may bring?

And second, Romer points out that there are other ways, better because more precisely targeted ways, to produce the same benefits as the minimum wage. So she puts the issue in its proper context.

If you want a quick lesson on an important, complex and often politically distorted issue, here’s your chance.

show comments
  • Jim.

    Does she explicitly state that to raise the minimum wage is to devalue the dollar against an hour’s unskilled labor?

    Your dollar can’t buy as much as it used to. Simple as that.

  • Peter

    Fellow readers:

    With reference to Dr Romer’s comments, and Mr Garfinkle’s post: “Compared to the redistributional benefits it may bring?” How does a minimum wage redistribute money? If wages are redisribution, then why is there talk about fairness resulting from taxation, which is arguably an instrument in the process of redistribution?

    Redistribution means distributing what has been distributed, and “redistribution” implies a distributor.

    If revenues to a business are an example of distribution, then wages might be called redistribution. But I don’t think anyone has called revenues a form of distribution.

    If revenues are a form of distribution of money to firms, asking for the money back, and distributing it in different amounts to the same firms, or simply handing it back in the same amounts, would constitute redistribution.

    What does the minimum wage have to do with this? Only if firms have a finite amount of wage money to distribute, have already handed it out to employees according to a salary scale, and then take it back and hand it out again according to a new scale, reflecting minimum wages, could this be called redistribution.

  • Adam Garfinkle

    I take your point, but the quibble exceeds the normal use of language. The minimum wage redistributes capital in such a way that those poorer people who manage to get jobs have more of it than they otherwise would, meaning that everyone else–all else equal–has a tiny tad less. And that’s all it means. The merit of the Romer article, in part, is that it shows how things are never “all else equal.”

  • Mr_Write

    Ms. Romer of course should be commended for putting out reasonable, effective solutions to a problem (minimum wage) created by this irresponsible government, but nothing is ever going to change. No one is going to replace the minimum wage, because supporters of this ridiculous policy will simply call out the mass of low-information voters to protest any reform at all. We are doomed. (Sorry to be so negative, but that’s the facts)

© The American Interest LLC 2005-2015 About Us Masthead Submissions Advertise Customer Service