Did I Not Call It? Sumner Against Raising the Minimum Wage

     You might as well call it 'Sumner against the minimum wage' as he is one of those conservative economists who are opposed to it and believe that currently at least part of our current unemployment rate is attributable to the minimum wage hike of 2008.

     This morning I predicted a Sumner missive was coming, the question was just when. I didn't necessarily see it coming this fast or that he'd devote an entire post to it.

    "While I for one had expected the President to give an assertive speech as he did at the Inauguration, he surprised everyone by coming out for a $9 minimum wage-that ought to give Scott Sumner hives. I'm still waiting for his first snarky comment about it."

      He already regularly claims that the $7.25 wage has been a contributing factor to the unemployment rate. So will this send it up further?
     
      http://diaryofarepublicanhater.blogspot.com/2013/02/the-state-of-union-is-good-as-president.html

      "Right on the eve of the biggest negative NGDP shock since the 1930s, Congress and the Bush administration got the bright idea of raising the minimum wage by 40%. Now President Obama seems to want to double down on that failed policy.

WASHINGTON—President Barack Obama’s proposal Tuesday to raise the federal minimum wage is likely to rekindle debates over whether the measure helps or hurts low-income workers.
White House officials say the move to boost the wage to $9 an hour, from $7.25, is aimed at addressing poverty and helping low-income Americans.

      "FDR tried to artificially raise the nominal wage rate 5 times during the 1930s. Each increase was followed by a sharp slowdown in industrial production growth."

       "President Obama seems determined to follow the FDR playbook, but forgot to include the monetary stimulus that prevented an outright disaster. Admittedly Obama’s proposed increase is far smaller. But do we really want to make it harder for illegal immigrants to find jobs, just as we consider amnesty?"

       "If the House GOP wants to do something intelligent for a change, they’ll block this insanity. That’s why I’m so worried."

       http://www.themoneyillusion.com/?p=19392

        He rules out those few studies that do show a positive effect of a minimum wage hike:

       "Yes, I know that there are a few studies that claim higher minimum wages don’t cost jobs. But as far as I know none consider the monetary offset mechanism."

        Speaking of FDR's "monetary stimulus" it seems to me that this was something that would be impossible for Obama to repeat now even if he could. FDR's action was to do something to repair or mitigate the pain the international gold standard was inflicting on the world and U.S. economy. It's the kind of thing that isn't repeatable even if you wanted to.

        Comparatively we've had a decent amount of monetary stimulus now with QEInfinity. Sumner thinks it's not enough, or not done in the right way for its full impact to be felt. Still I don't think if we did get the hike-a big if anyway-that the Fed would respond by monetary tightening.

        However, it's clear that the knock on the minimum wage needs to be hit head on. To me Reagan kind of underscored the speciousness of the belief that low wages-and no minimum wage-are in the interests of the poor by defending his poor civil rights record in the 1980 tv debate by pointing out that he supported a different-ie, lower-minimum wage-for blacks. The logic was that since it's the "preference" of many employers not to hire blacks, you might be able to entice them to hire a few more if you let them pay really low wages.

       In this reduction absurdem, I think the wrongheadedness of opposition to the minimum wage might at least be glimpsed.

       While many economists don't like the minimum wage and are convinced of it's ill consequences, it does poll very well among Americans across lines of party and ideology.

       This is probably why Sumner likes to say "there's no such thing as public opinion in economics." For him what counts are what other-Neoclassical-economists think. From what I understand, even today the question of the minimum wage is at best 50-50 among economists today.

       Jared Bernsteain-the former head of Vice President Biden's Council of Economic Advisers is one economists who's all for it:

       "It's a great idea, one I've espoused on these very pages. The president suggested raising the federal minimum from its current level of $7.25 up to $9 by 2015 and then index it to inflation. An increase of that magnitude would directly lift the wages of 15 million low-wage workers, according to the WH."

      "Clearly, in an economy where for decades growth has failed to reach our lowest wage workers, it's time to raise the wage floor to ensure that low-wage workers have a decent shot at a fair wage."

     http://www.huffingtonpost.com/jared-bernstein/obama-minimum-wage-state-of-the-union_b_2674257.html

      What's more, there aren't large job losses from a modest raise in the minimum wage:

       "Raising the minimum wage will boost wages without jeopardizing jobs while improving turnover and productivity: A range of economic studies show that modestly raising the minimum wage increases earnings and reduces poverty without measurably reducing employment, and that in fact employers may see a more stable workforce due to reduced turnover and increased productivity:

• Numerous careful economic studies have shown that increasing the minimum wage has no negative effect on employment. Recent comprehensive studies have built on earlier research and confirmed that higher wages do not reduce employment, potentially because they increase employers' ability to attract, retain, and motivate workers. And they benefit workers by increasing the reward to work. For example, one recent study found that when states like New York, Rhode Island, California, and Vermont raised their minimum wage, their workers benefited relative to workers in neighboring states that did not raise their minimum wage. This study concluded: "These estimates suggest no detectable employment losses from the kind of minimum wage increases we have seen in the United States." [Arindrajit Dube, T. William Lester, and Michael Reich, 2010, "Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties," Review of Economics and Statistics.]
• In 2006, the Congressional Budget Office analyzed a2 increase in the minimum wage and found that "the potential employment and unemployment impacts of raising the federal minimum wage rate... are difficult to predict, but are likely to be small."

     While Sumner always blames the-whopping $7.25-for to an extent raising the unemployment rate, he, of course, gives the lion's share of the blame to the Fed's alleged failure to maintain NGDP at 5% or something close.

  

      He has also said that the more time passes, the more of the current employment can be attributed to the minimum wage, UI, and other "supply side" issues. The idea is that if the Fed maintains 5% NGDP then the supply side drives the economy and the role of fiscal policy is to build up the supply side.