Charles (goes out of his) Lane On the Minimum Wage

February 19th, 2013 at 12:54 pm

Charles Lane of the WaPo oped page often makes pretty muscular arguments in favor of conservative causes.  But alas, not today.

Today he’s got a bit of a mash-up on why he’s against the minimum wage increase, a dog’s breakfast of arguments that failed to make his case.

Lane argues that even if the weight of the research is correct and few workers lose their jobs (or work fewer hours) because the increase, it’s got to come out somewhere and therefore someone gets hurt.  But that, of course, would be a reason for never doing anything at all:  the economy is nothing else if not a bunch of moving parts and every intervention shows up somewhere.  This, btw, holds for an increase in the Earned Income Tax Credit as well, Lane’s (and others’) favored solution to boost the pay of low-wage workers, though for some reason, these moving parts don’t interest him.

So, since every action has a reaction, when considering something like a minimum wage increase, the questions policymakers must ask are: a) is the intervention truly necessary, b) what’s our best guess re the impact, and c) will the benefits outweigh the costs?

My answers, which will be different than Lane’s, who has a long—and, as I said, often well-argued—track record of opposing most of what anyone proposes, are: a)  yes, because low-wage workers clearly have failed to receive their fair share of the economy’s rising productivity, b) there’s reams of research that suggests the job-loss effects hover around zero, and c) even if we take Lane’s guesstimates on job losses, the vast majority will be better off (Lane argues that 300,000 low-wage workers could lose their jobs if there’s an increase; estimates are that between 15-20 million workers will benefit from the increase)

Lane’s main argument, however, is that the minimum wage will “impose costs on other vulnerable members of society.”  That’s way too vague to be helpful.   He cites price increases by employers pushing costs forward and “wage compression” (workers above the new minimum getting fewer raises).  But again, where are the magnitudes?  If your doctor prescribes medicine that will make you better but will have some side effects, do you not take it?  Lane’s argument would be to throw the medicine away, because any side effects, regardless of their magnitudes, vitiate the medicine.

Both of these effects have been found to be small enough by far such that the benefits of minimum wage increases of the magnitude outweigh the costs.   One reason, and Lane pays too short shrift to this, is that some of the increase in absorbed through lower profits, which doesn’t hurt low-wage workers and in fact, rebalances a bit of the income inequality that just keeps growing.

Finally, if Lane and others want to expand the EITC, go for it.  But make this a real campaign—not just a defensive gesture when someone mentions a minimum wage increase.  I spoke to Lane about this piece and he sincerely believes that increasing the EITC is a better way to go but I couldn’t find any of his writings in support of it (I apologize to him in advance if I missed past writings in favor of expanding it–if you point them out to me, Chuck, I will highlight them).

So explain to us how we’re going to raise the revenue needed to do this—I assume Chuck (and the WSJ oped page and others suddenly in love with the EITC) doesn’t want to add the increase to the deficit.  Please don’t wave hands, proffer vague warnings, and solve the problem of low-wage work by suggesting a higher EITC without applying that solution to the same analytic and political scrutiny as the minimum wage increase.

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9 comments in reply to "Charles (goes out of his) Lane On the Minimum Wage"

  1. Smith says:

    Liberals and liberalism seem bereft of ideas and common sense. What moral justification is there for one man to work 40 hours at $9/hour and another to earn $20, $30, or $40? Think of the retail clerk vs the college educated office worker. Do you think retail clerks are lazy or stupid? I think the choice of occupation has everything to do with social conditioning. So too do wage demands. Miners and auto workers who went on strike in the 1930s for higher wages weren’t more educated than more well paid office workers of their time (excepting underpaid secretaries). But the depression and working in the coal mines or on assembly lines provided a stronger incentive to demand fairer compensation. When the average earnings for work is $70,000 (excludes interest income, capital gains, benefits, social security) for people working full time, why is anyone working for less than half that amount? $15/hour would still allow plenty of market range, indexed and phased in over 10 years. If you live in a metro area, as do nearly half the poor, due to regional differences in the cost of living, $15/hour is comparatively already the minimum for most of the United States. http://money.cnn.com/calculator/pf/cost-of-living/ Settle for $9 now, but focus debate on $15, adjusted for cost of living, at a minimum.


    • Fred Donaldson says:

      Forget the $70m average. Fourth quarter 2012 median wage was only $775 or $40,300 before taxes, health insurance, etc. – so half of workers make more and half make less. This is the B.L.S. source: http://www.bls.gov/news.release/wkyeng.nr0.htm

      Average earnings include the rich folks, and this really skews the numbers. For example, we have an American casino owner, whose personal fortune would allow him to pay cash to buy not just one average $200,000 house, but 124,000 such houses – a medium-sized city, owned by one person. And if he put down 20% and mortgaged the rest, he could buy 620,000 houses – more than all the total occupied housing units in Philadelphia.


      • Smith says:

        Unfortunately, reports of median income always make half the country feel good. The mean should be your guide in deciding policy, it tells you $9/hour is still too low. The means justify your ends.

        If U.S. were 5 people, here’s what they’d earn:

        Mean Household Income of Quintiles
        11,239
        29,204
        49,842
        80,080
        178,020

        http://www.census.gov/newsroom/releases/archives/income_wealth/cb12-172.html
        http://www.census.gov/prod/2012pubs/p60-243.pdf
        Table A-2 on page 38

        Quintile in this case means households sorted by income and then divided into five parts with the same number of households in each part.

        Mean Household Income of Quintiles with Even Distribution
        70,000
        70,000
        70,000
        70,000
        70,000

        Mean Household Income of Quintiles with adjustments
        50,000 new worker
        65,000 10 years experience
        70,000 works overtime
        75,000 20 years experience
        90,000 boss

        If you think the boss deserves a lot more money, you’re welcome to give him or her more of your salary. Unfortunately that will mean he can bid up the price of things I may want too. So, I’d prefer limits on transactions, which is part of the reason we have gift taxes.

        Because the Census reports median household income, that makes individuals feel even better. They think households are counting a lot of two earner families. They don’t realize there are about the same number of individual full time workers as there are households (120 million).


  2. Seattle Alex says:

    Good old Newton’s 3rd law misapplied as usual. If a horse pulls on a carriage does the carriage not then pull back on him with equal and opposite force? Can there not be movement? Of course, so clearly there can be other sites of force involved in the system. It appears Mr. Lane would rather sit idle in his carriage. Personally I prefer a nice afternoon stroll…


  3. Nick Batzdorf says:

    You know, the arguments these people are drumming up are nothing more than an attempt to mask an extremely unpleasant aspect of conservatism: THEY’RE JUST PLAIN MEAN!

    How can anyone in good conscience begrudge a fellow human being the right to be paid a poxy $9 dollars an hour?!

    This is why I’d be liberal even if the facts didn’t support it. It so happens that they do, but who wants to live in a society in which the person working at a fast food restaurant can’t afford to live?


  4. JohnR says:

    “Please don’t wave hands, proffer vague warnings, and solve the problem of low-wage work by suggesting a higher EITC without applying that solution to the same analytic and political scrutiny as the minimum wage increase.”

    I don’t know about you, Mr. Bernstein, but I’m not going to wait here for that, let alone be holding my breath. All of this mighty exercise in standing athwart reality yelling “Stop!” is based on a simple variant of the old adage “If you can’t dazzle them with brilliance, baffle them with bullshit.” Or perhaps the old lawyers’ maxim – “When the facts are against you, argue the law; when the law is against you, argue the facts; when both are against you, pound the table and yell like Hell.” The only time we see any sort of “analytic scrutiny” is when it can be based on a combination of bizarre assumptions, misleading arguments, fantastic models, inappropriate data and ad hoc, non sequitor conclusions. Still, I suppose it never hurts to ask.


  5. urban legend says:

    We have had a national minimum wage for 75 years. The evidence that it harms employment in any way is skimpy at best and arguably such a conclusion, in fact, is contrary to the weight of the evidence. The theory that it harms employment is extremely simplistic and weak, not even worthy of being called “Econ 101.” It ignores countervailing forces to increased costs in such factors as (1) it does not change competitive positions since it applies to all employers (and most in a given competitive environment will be similarly dependent on low wage labor); (2) it pushes other lower wages up in a reverse cascade effect as employers, assuming they must compete for talent, maintain a premium over the minimum for higher wage jobs; (3) higher income improves morale and reduces turnover costs; (4) higher wages for several million workers means more money in the hands of those with the highest propensity to spend (and to spend it in the U.S. and locally in particular), thus increasing demand for the goods and services the employers offer.

    Libertarian theory opposing it breaks down completely, too. Their centerpiece notion that only the employer has a legal claim to the revenue even when it cannot be generated without labor, and therefore only the employer has complete discretion to decide how much that labor will be paid, relies upon state intervention to enforce that legal relationship. The employer unwilling to bargain with workers who wish to exercise their Constitutional right of association also benefits from state intervention when the state protects the refusal to bargain from free actions by the workers. Who knew libertarians have such a selective view of when state intervention is OK or not? Is it just coincidence that their permissive view only comes into play when employers want it?

    So we have had minimum wage enshrined in law for many decades. The American people consistently support raises in the minimum wage. The entire rest of the advanced world has a minimum wage either by statute or national collective bargaining where labor laws are actually honored and enforced. There is no evidence that it does anything other than produce its intended effect of raising income among those who most need it. Everyone but everyone acknowledges that we have issues with rising inequality of incomes, even most Republicans Why are we still having this ridiculous conversation?


  6. Michael Drew says:

    I am disposed to support the increase. But I think Megan McArdle raises a concern that should be addressed by those who support it, especially those who have also been vocal about the issue of the effects of long-term unemployment, and that also goes to the magnitude issue raised in the post.

    Her point is that, even if disemployment effects are minimal in terms of numbers f people affected compared to the aid given to low-wage workers, we should still give presumptively greater consideration to disemployment effects, because of the greater impact of extended unemployment on a person’s overall wellbeing over the course of her life than that of a moderate-sized raise on the life of a person who may or may not work in a low-wage job for the majority of her life. Now, presumably if we could finally learn the size of the effects, there would still be some point where we’d prefer to have the wage increases over the additional jobs. But the idea is that, in the absence of conclusive data, we should be more preoccupied with preventing joblessness in this environment because of the unemployment rate and especially the long-term unemployment rate, than we are with raising the wages of the lowest-wage earners who are lucky enough to have jobs.

    Like I said, I see real benefits to be had from raining the MW, but this way of framing the disemployment effect hypothesis does make me want to pause to give it its full due consideration. Others who have been vocal about the scourge of long-term unemployment ought to want to do so as well. The flip-side is that this concern about LTUnemplmt should not be a single-track concern for McArdle if she is committed to the issue. She should audit all of her positions to reflect this degree of priority if this is in fact such a pressing problem in her mind. (And to be clear, I’m not saying her other positions aren’t reflective of it, at least from her perspective as relates what policies would best reduced LTU. I’m just saying the priority should be consistent across policy debates if she’s going to use it to trump one of them. She shouldn’t fret inflation that keeps not materializing, which is akin to being worried about incumbent job holders not receiving sufficient wage increases, if her concern is for those without jobs for months and years, for example. I’m not sure if she does or not, but she shouldn’t.)


  7. Michael Drew says:

    …I should add to the list of thing McArdle ought to reconsider if she is so concerned about the plight of the long-term unemployed: any concern at all about the federal budget deficit in the short term. Obviously.


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