HICKS: Minimum wage arguments make little sense

Mike HicksThere is a lovely little spat about minimum wage legislation going on in my local paper. It pits economic, music, criminology, telecommunications and psychology professors against one another in an entertaining debate.

It is important to understand what is going on with the minimum wage, especially since a group of Hoosier lawmakers is proposing a 39-percent increase this year. I think both sides are talking past each other.

Economists who study the minimum wage largely agree that it causes some workers to receive better pay and some to lose jobs. The extent of these effects depends upon the size of the increase relative to market-based wages.

Of course, market wages are determined by the location of the job, the skill of the worker, and the willingness of the business to pay the wage. These market wages are imperfect, but markets set wages. Because there is such variation in impacts across time and place, economists come down on both sides of the issue.

However, serious analysts agree that its effects have been small over the years. Perhaps fewer than one of 200 adults works at the jobs. Those mostly hurt and helped by the minimum wage are teenagers—very, very few of whom live in poverty.

Among the non-economists writing on the opinion page, the entirety of this debate seems about helping those in poverty. This is sweetly naive, and makes me wonder if my academic colleagues wish for sparkly purple unicorns to dance at their faculty meetings.

The minimum wage debate has nothing to do with helping folks in poverty. In fact, it is hard to identify any other public policy that affects fewer people in poverty.

The minimum wage debate is all about raw political power. There is nothing wrong with political power, of course, but we should not confuse it with dancing unicorns.

The real reason there is such a focus on the minimum wage is that any change in it leads to contract renegotiations for most public-sector union contracts. Now, there is nothing wrong with public-sector workers, nor is there anything wrong with negotiating with them about their salary. We just ought to be honest about how it works.

Our anti-poverty tools, including the minimum wage, are feeble. One good fix would be to dismantle most of the social welfare programs and offer a guaranteed income to each family. It’d be cheaper and far more effective. The only problem is that we’d need a lot fewer public-sector workers to help administer hundreds of programs.•


Hicks is the George and Frances Ball distinguished professor of economics and director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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