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The Therapy Sessions
Friday, June 25, 2004

Minimum intelligence

One of the moldiest ideas in the Democratic playbook is the idea of buying votes by raising the minimum wage. It's supposed to be a real vote getter (at least among people who going vote Democratic anyway), but it never really seems to work. Carter, Mondale and Dukakis all tried it, to no avail. I suspect even socialists aren't that excited by it anymore.

To begin with, only a small number of Americans make minimum wage, and many of those are kids.

Second, it's just dreadful economics: high labor costs mean higher inflation, more jobs disappearing (or going offshore) and less work that will be available. All of these hit the poor disproportionately.

The fact that Kerry has wheeled this rusty cannon is not a good indication of his economic imagination - he can't imagine any policy more serious than attempting to buy votes. I think it just emphasizes a key point about Democratic economic ideas: they think that the American voter is too stupid to see through the transperancy of the ploy.

(This is the point where I say the obligatory: I hate Republicans, but God Almighty, do I ever hate Democrats...)

As usual, the WSJ is all over the story, in a scathing editorial:
John Kerry says he wants to raise the minimum wage to $7 an hour from $5.15, and his proposal has us thinking: Why stop there? Why not $10 an hour, or $20, or for that matter whatever a U.S. Senator makes? If Mr. Kerry thinks government is obliged to guarantee Americans a certain level of income, why not simply elevate everyone at least into the middle class?

The reason, as Mr. Kerry well knows, is that wage floors aren't manna from heaven. Here on Earth, they tend to price certain kinds of labor out of the job market. Businesses hire and pay workers what they think their skills are worth relative to other ways they can spend their capital. Force the price of labor too high, and suddenly businesses hire fewer workers, especially those at the lower rungs of the skill ladder.

This is one of the most settled propositions in economics, second only perhaps to free trade. Sure, Mr. Kerry has found a few economists willing to lend their credibility to his proposal, but even they don't deny that some people may lose their jobs--which is why they don't want to raise the minimum too high. The debate is over how many poor people Mr. Kerry would throw out of work.

To answer this question, you first have to look at who earns the minimum wage. The Labor Department believes that 1.5% of the work force, or 2.1 million people, earn $5.15 an hour or less. More than half of them are under the age of 25, meaning they are likely working a temporary or entry-level job. Three-fifths are in the leisure and hospitality industry, which means in jobs that often come with tips in addition to wages. Studies have also shown that most people earning the minimum wage are not poor--more than one-third live with a parent or relative. Only 15% are the sole breadwinner in a family with children.

These low-paying jobs are important because they are a gateway into the world of work for people who lack experience and skills. One study showed that, of a sample of workers earning minimum wage, fully 63% were already making more a year later...

...The minimum wage gambit sends a bad signal about the direction of Mr. Kerry's economic policy. It is one of the mustier items in the liberal playbook and suggests a candidate who dances to the tune of unions rather than thinks creatively about how to reduce poverty.

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