Make labour more expensive?
JARED BERNSTEIN has a post up today entitled, "The minimum wage: time to start working on the next increase". In it, he argues that, you know, it's time to start working on obtaining another increase in America's national minimum wage. In support of his point, he produces this chart:That last, substantial rise in the minimum wage looks strangely familiar. In fact, it mirrors quite closely the sharp rise in unemployment that occurred over a similar time frame.Now, I wouldn't begin to suggest that the rise in the minimum wage caused all of that unemployment. And, generally speaking, I'm prepared to accept that in most cases, small increases in the minimum wage are less harmful than straightforward micro would have us believe (although it also seems to me that as a means to fight poverty, minimum wage rises are a far worse idea than other alternatives, like wage subsidies or, hey, tight labour markets). Still, this is terrible timing for a proposal like this. The unemployment rate for workers without a high-school diploma is currently 13.1%. For workers between 16 and 24 it's 16.0%, and for those between 16 and 19 it's 23.2%. These are not high marginal productivity workers. I'm trying desperately to think of a dynamic in which raising the cost of employing these people increases their employment, but I just don't see it. The only real mechanism I can imagine is one in which the rise in minimum wage redistributes money from rich owners of capital to poor workers with a higher marginal propensity to spend, thereby increasing aggregate demand. It is very hard to see how this effect could be big enough to increase total labour demand despite the higher wage, particularly given the relatively small number of workers impacted by the minimum wage. The real earnings of the poor is clearly a concern, but one would think that a reduction in unemployment among low-skill workers should be top priority for those that care about such things, not least because tight labour markets are likely to be most effective at generating broad-based, sustainable increases in real compensation.