Sunday, November 8, 2009

Creating jobs by lowering the minimum wage

I live in the New York metropolitian area. And I listen to Bloomberg radio on 1130 am. Whenever a jobs report comes out they give the most extensive jobs coverage around. Sometimes they even have Edmund Phelps on to discuss the situation. He has long advocated government subsidies to businesses increase the quality and quantity of jobs.

Anyway, this time, they had a quick interview with a university of Chicago economist who is recommending cutting the minimum wage to increase employment. I had to laugh out loud. Even the host if the discussion was skeptical, dismissing the idea as politically impossible.

In theory, of course, the economists was right. Basic supply and demand says lowering the wage will let employers hire more workers. But it sounded more like he was offering the standard "free-market" line on unemployment.

But in 21st century democratic capitalism, such a reduction is close to impossible.

1) Wages are some what sticky. The impact on performance of lowering existing employee wages would offset any savings.

2) Government insurance means less employees have to take a lower wage.

3) High political costs. It would be impossible for an liberial or moderate to reduce the minimum wage. They would be called "Uncle Scrooge". Their committment to poor and work class people would be questioned. Their public image would suffer from being labeled as insensitive to the poor.

4) It could put downward wage pressure on middle class wages. The middle class would oppose the move vigorously.

5) Bad income distribution effects. It would benefit the rich at the expensive of middle and lower classes. It would reduce the amount of total income to the poorest citizens.

6) Highten social tension. Renew class tension. Government and corporations would be accused of getting rich on the backs of the poor.

Creating jobs is one thing; but creating good jobs is the real goal. Their are more equitable ways of creating jobs than lower the minimum wage. Job subsidies, training subsidies and extending employment benefits are better approaches for a better united states.

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