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July 29, 2006

Notes from Ferdy - Minimum Wage Hike Passes House, But At Least I'm Not Bitter About It

by Ferdinand T Cat

House Republicans have passed a bill containing a minimum wage increase and an estate tax cut. Democrats are in favor of the minimum wage increase, but opposed to the estate tax cut. In general, a minimum wage increase also increases unemployment, while a tax cut helps to increase employment. The House plan puts the two forces together, and we can only hope they cancel each other out.

I know that there are cynics out there who think the Democrats are using the minimum wage hike to force an increase in unemployment going into the next election cycle, because a bad economy tends to help the party out of power. In an earlier time and place, that cynical view would probably prevail in conversations around the conservative dinner table, but this is the information age, and with the powers of the Internet at my disposal I can learn the truth in a manner of minutes. Therefore, I can say with confident authority that Democrats are simply not that smart.

I hope this example of my open-minded approach to politics will make my critics feel better.

Respectfully submitted,

Ferdinand T. Cat

Trackposted to The Open-Minded Rants of Samantha Burns, Point House, Case Notes from the Potomac Asylum, Blue Star Tolerance, Stuck on Economics, Jo's Conservative Dinner Table, and Basil's Life-Long Study of the Cynical Enthymeme.

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Comments

Actually, it turns out the evidence that "a minimum wage increase also increases unemployment" just isn't there.

That's what the theory predicts, and it's a really good theory, but econometric studies of the real-world minimum wage don't pick out the effect very reliably, and possibly not at all (there is some evidence of selective publication of only positive results).

There are a couple of theories about what might be happening---for example, employers might take back in working conditions what they pay in higher wages---but nothing has been confirmed.

It seems unlikely to me that a minimum wage increase has no unintended consequences, but it looks like incresed unemployment may not be one of them.


Posted by: Windypundit [TypeKey Profile Page] at July 30, 2006 11:24 AM

I dunno. It bothers me that the 1990 and 1998 minimum wage increases happened right before we went into a recession.

An analysis of the 1990 minimum wage increase can be found at

http://www.cato.org/pubs/regulation/reg18n1c.html

You'll note it takes about a year for the effects to kick in, and they hit teenagers the hardest. Standard pro-increase analysis amortizes effects over the long term to make the spikes appear smaller, or they go back to data before 1980, when inflation caused by monetization of the debt was nullifying the effects of the increases.


Posted by: Ferdy [TypeKey Profile Page] at July 31, 2006 1:25 AM

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