August 7, 2006

Economists coming around to minimum wage increase

Thanks to Atrios for pointing me in the direction of this article.

Higher Minimum Wage No Longer Regarded in U.S. as Sure-Fire Job Killer

Aug. 7 (Bloomberg) -- Prominent economists of all ideological persuasions long believed that raising the U.S. minimum wage would retard job growth, creating unintended hardship for those at the bottom of the ladder.

Today, that consensus is eroding, and a vigorous debate has developed as some argue that boosting the wage would pull millions out of poverty.

A moderate increase in the minimum wage won't raise unemployment among low-skilled workers, according to recent studies, many economists say. They are joined by some business executives who say they can live with that, especially if it's coupled with tax relief.
(By the way, they aren't talking about The Paris Hilton Welfare Act the Estate Tax )
``Workers' wages need to at least keep pace with inflation,'' says Andrew Puzder, chief executive officer of Carpinteria, California-based CKE Restaurants Inc., which owns the Hardee's and Carl's Jr. fast-food restaurant chains. Puzder says he supports a reasonable increase in the minimum wage along with some form of tax relief for small businesses.

In 1995, Princeton economists David Card and Alan Krueger published research on unemployment trends among fast-food restaurants in New Jersey and neighboring Pennsylvania. They found that the number of jobs rose in New Jersey compared with Pennsylvania, even though New Jersey had a higher minimum wage.

The study, while not perfect, ``provided evidence that went against the common view,'' Solow says. ``It changed the way many economists look at minimum wage.''

`How Small the Effect'

``The debate now has become over how small the effect is as opposed to how large,'' says Arindrajit Dube, a labor economist at the University of California at Berkeley.

Binder acknowledges that it's an ``intellectual puzzle'' why a boost in the minimum wage wouldn't lead to wider unemployment, because the economic laws of supply and demand dictate that it should.

Explanations include cost savings from reduced job turnover, increased productivity as a result of better worker morale and the attraction of higher-quality employees through higher wages, Blinder says.
Or maybe, those minimum wage workers earning more money have more to spend, thereby contributing to the economy, thereby increasing demand, thereby allowing employers to hire more people?

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