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Thu, Nov. 14

Minimum wage hike is wishful thinking

They call economics "thedismal science" because it is constantly at war with oneof life's most pleasant occupations ­ wishful thinking.

Suggest a simple step to make people better off ­ say, by freezing gasoline prices ­and economists will dourly explain why it will have un-intended consequences that outweigh any benefit. They also tend to visit kindergarten playgrounds and announce that Santa Claus doesn't exist.

But a group of reputable scholars is trying to put a happy face on economics. They say the government can decree more pay for the least-compensated workers and the only consequence will be the intended benign one.

The Economic Policy Institute, a Washington research group, recently unveiled a newspaper ad trumpeting a statement by some 675 economists who endorse increasing the minimum wage from $5.15 an hour to $7.25.

A generation ago, people ­ even liberal economists ­universally agreed that in-creasing the minimum wage was a mistake because it would produce more unemployment. Force companies to pay the lowest-skilled workers more than they are worth, and companies will get rid of them. In this view, it's better to have a job that pays $5 an hour than to lose one that pays $5.15.

That insight violated, but didn't curb, the perennial liberal desire to pursue social improvement at other peo-ple's expense. In the past, Democrats boosted the min-imum wage in stubborn dis-regard of the wisdom of ac-ademia. Lately, though, they have been able to brandish studies alleging that an in-crease may reduce unem-ployment. In fact, the re-search merely showed thata greater minimum wagefailed to increase unem-ployment in the fast food industry, not that it failed to destroy jobs in general. The studies made it respectable for economists to echo the old Michelob slogan: "Who says you can't have it all?"

They hedged their statement, quoting from the 1999 Economic Report of the Pres-ident: "The weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment." More succinctly, a small increase may cause a small increase in unemployment.

But small increases also provide only small benefits, at least to the workers who keep their jobs. And the change the economists endorse is not a modest one. It would lift the floor from $5.15 to $7.25 ­ a 40 percent increase.

If the federal government sought to discourage the hiring of low-skilled workers by making employers pay a 40 percent tax on their wages, no economist would expect low-wage employment to grow or remain the same. But that's exactly how this proposed change would work.

Supporters insist employers will reap benefits in less turnover and reduced costs for training new workers. But if businesses could make more money with that tradeoff, the government wouldn't have to force them to do it ­ greed would be motivation enough.

Despite the minority view in the ad, Hoover Institution economist David Henderson says the consensus in the trade is that each 10 percent add-on would destroy 1 percent to 2 percent of young people's jobs. So a $7.25 min-imum wage could mean the loss of as many as 1.6 mil-lion positions.

That may seem a small price to pay. Sen. Edward Kennedy, D-Mass., thunders, "It's a travesty that a family of three earning the minimum wage works five days a week all year round yet still lives below the poverty line." But he has taken some liberties with the truth. A family of three with one parent working full-time and the other half-time, both at the minimum wage, gets $15,450 a year in wages, less than the poverty level of $16,600. But that family also qualifies for the federal Earned Income Tax Credit and (with a child younger than 17) the child-care tax credit, bringing total take-home income to $17,638. That's still a modest amount, but more than this family will earn if one of its members is unemployed. And chances are good that economists have been right all along in expecting such consequences.

EDITOR'S NOTE ­ Arizona Prop. 202 seeks to raise the minimum wage to $6.75.

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