Raising the Minimum Wage

I ran across an interesting set of letters in my sacred Sunday New York Times that were written by readers reviewing an article in last weeks paper that covers the issues of income inequality and raising the minimum wage.  The writer of the article,Christina D. Romer, an economics professor at the University of California, Berkeley, and was formerly the chairwomen of President Obama’s Council of Economic Advisers, wrote the article explaining her skepticism of raising the minimum wage.  Like most progressives I support the majority of the President’s policies and thought initially that raising the minimum wage from the national average of $7.25 to $9.00 an hour, raising the annual income of a full time minimum wage worker by $3,500 sounded like a good idea for targeting inequality for those living under $40,000 a year.  After reading the article there was some interesting points that Romer brings up that should be thought about critically.  Romer says, “Evidence suggests that employment doesn’t fall much because higher minimum wage lowers labor turnover, which raises productivity and demand.”  Romer goes on to argue that perhaps productivity increases because a higher minimum wage attracts better workers that are part of a higher socio economic status such as middle class workers, which then take the jobs from lower income workers which defeats the idea of helping the poor.  Romer goes on to say that another reason employment will not drop off is that businesses deal with a higher minimum wage by raising prices on their products that put the burden on consumers.  The Catch 22 here is that consumers that pay low prices on goods such as the regular customers at McDonald’s, have typically lower incomes and are affected greater by price increases and the minimum wage is hurting rather helping in this scenario.  Romer advocates increasing the earned income tax credit, a subsidized payment from the government added to wages, which is more efficiently targeted to helping the poor without the other consequences of raising the minimum wage.  According to Romer this increased tax credit would increase the amount of labor leading to increased employment without minimum wage deterring employers from hiring.

In the letters, Matthew Atkin from Boulder, takes a collective view stating that Romer is somewhat careless in her write off of the small amount of money redistributed and spent by the poor when compared to the whole economy if minimum wage is increased.  Another letter written by Cleroa from California gives a more positive view of the article by stating that increasing the minimum wage would lead to more jobs being cut.  As has been a theme in this class those with capital have a different set of interests than labor.  Those with capital want more capital and those in labor want to keep their jobs that have good wages.  However as we see with Matthew and Cleroa, they have different interests even though they would likely be described as on the side of labor.  Matthew wants to see inequalities addressed and living conditions improved by raising the minimum wage whereas Cleroa wants to keep her job and she fears that a raising minimum wage would lead to job cuts.  Both have good points relating to the article with different interests. Is raising the minimum wage the best way to deal with the inequalities of our nation’s disadvantaged?  The simple answer to this complicated question is no but it’s not the worst way either according to Romer.