President Obama Considers Executive Action on Raising the Minimum Wage

      Of course, he is unable to raise it across the board however, it seems he may have the power to effectively raise it for all workers of federal contractors.

       "Here’s some welcome news. At his meeting with Democratic Senators last night, President Obama indicated that he is giving serious consideration to executive action designed to raise the minimum wage for employees of federal contractors, according to one Senator who was present."

     "Proponents want to see this executive action happen on the merits — theybelieve it could impact as many as two million employees of federal contractors, and would help the economy. But they also believe such action could give a boost of momentum to the push for a minimum wage hike for all American workers, which obviously would require Congressional approval, but is currently facing Republican opposition."

    "Senator Bernie Sanders told me in an interview that the president took the idea very seriously when asked about it last night."

     http://www.washingtonpost.com/blogs/plum-line/wp/2014/01/16/obama-weighing-executive-action-on-minimum-wage/

     It is welcome news that the White House is more and more getting it that if they want to in any meaningful way advance the President's agenda they need to use EA when available. He isn't the one that has ruined this government and made it almost totally dysfunctional. As Congress refuses to legislate the President must take whatever legal avenues are open to him. Of course, we have Bob Murphy all upset at the idea that poor American workers could get a raise. 

     While Sumner is the most able expositor of zombie ideas-in terms of dressing them up in new colors and declaring them brand new; ergo, old wine in new bottles-Murphy beat him to the punch here.  What's a problem for Bob is that while whenever this debate comes up-he evidently feels very passionately about this as he's usually first one on Team Neoliberalism on this one-the economics profession has started changing it's mind since the late 90s on the MW as he himself admits. 

    In past posts Murphy tended to go short and sweet-'Any economist worthy of the name knows that raising the MW increases unemployment because just as raising the price of apples is going to cut down on sales so will raising the price on labor.'

    However,  he finally concedes, the field isn't so unanimous in agreeing with this anymore. 

    "The Economic Policy Institute has released a letter signed by 75 economists–including 7 winners of the Nobel (Memorial) Prize in economics–calling for the federal government to raise the national minimum wage from its current level of $7.25 to $10.10 by 2016. In this post I want to explain how this is possible, and why I remain wedded to the (literally) textbook discussion of minimum wages."

    "The obvious downside of raising the minimum wage is that it would cause unemployment among low-skilled workers, the very people allegedly being helped. Yet according to the EPI letter, the evidence shows that previous increases in the minimum wage have had “little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market.”

    "If you want to see where these economists are coming from, try this survey article. It documents how the consensus through the 1990s used to be just what we all learned (and taught, for some of us) in Intro: Raising the minimum wage reduces the quantity demanded for low-skilled workers, thereby reducing job opportunities."

    "Yet from the 1990s onward, the literature began shifting. From today’s vantage point, the new consensus is apparently that modest increases in the minimum wage have little impact on employment. Hence, you haveprogressive economists clamoring for a hike, who say that the critics relying on “textbook economics” haven’t kept up with the cutting-edge literature."

      http://consultingbyrpm.com/blog/2014/01/economics-laureates-in-favor-of-raising-the-minimum-wage.html

      He argues that even if small increases in the MW have a marginal effect surely the proposed hike-from $7.25 to $10.10 is not small. 

      "Even among the studies that conclude a hike in the minimum wage will have little discernible impact, the outcome is couched as a “modest” hike. I have seen studies say things like “a 10 percent increase in the minimum wage will have such and such effect.” Yet disregarding price inflation through 2016, the EPI letter calls for a 39% increase! I could be mistaken, but I don’t think there exists a single academic study concluding that a 39% hike in the minimum wage would have no appreciable effect on employment. Thus, even if we stipulated all of the recent empirical studies as gospel, the 75 economists have no basis for their recommended policy. At best they should be arguing that, say, a hike from the current $7.25 to $8 per hour (and thereafter adjusted for price inflation) would not measurably hurt employment."

     First of all, the hike is phased in-as the bigger hike in percentage terms was in 2007. Then again, many states already pay more than the $7.25 an hour anyway so the hike will be less. What Murphy doesn't do though is even try to show any rigorous proof that the 2007 hike increased unemployment. 

    I know Sumner would just pounce here and say 'Hello? we had the start of a rise in unemployment from under 6% to 10%. Did the MW hike have nothing to do with this?' However, that's nothing like proof in economics which Sumner surely knows-point out a correlation that could prove your point and then declaring it has been proved and no further discussion over it is needed. 

    Murphy then offers this further complaint:

    "Again, even taking the new generation of studies at face value, they overlook a major drawback to the progressive goal: The studies look at the absolute growth in employment, rather than the unemployment rate, among low-skill workers. So even if it’s true that, say, a Burger King franchise will hire roughly the same number of teenagers between now and 2020 as it otherwise would have, it might not be the same group of teenagers getting jobs. Rather, at the $7.25 level there will be lower-skilled applicants cycling through, with a high turnover rate as the store manager tries to find the few decent workers in the bunch. At the higher rate of $10.10 per hour, higher-skilled kids (perhaps those from affluent families who are home from college) will enter the mix in greater numbers. The manager will be pickier on the front end in giving somebody a bite at the apple, and there will be less turnover. (Note that this isn’t merely hypothetical; the studies finding “no effect” often cite “lower job turnover” as an explanation for how the firm responds.) Thus, even taking the studies at face value, it is entirely possible that there are a bunch of people with low skills who now can’t get a job, who otherwise would have been able to. They are merely being displaced by higher skilled workers who otherwise would not have been interested in a position paying so little."

      It's kind frustrating as he never even considers the historical record. In 1969 the MW in today's dollars-indexed for both inflation and productivity gains-was $16 an hour. Were unskilled workers really worse off then? The MW remains on of the most effective anti-poverty programs out there. I mean surely this is preferable to the Sumner answer to growing inequality-a wage subsidy. That's just a kind of band aid for the fact that more and more Americans have been knocked down into the service sector 

      However, Murphy's preferred method of using an old fashioned supply-demand model and saying that just as raising the price of apples lowers the amount sold so raising the price of labor does the same is questionable in its foundation as supply and demand has some problems with it intrinsically. 

      http://diaryofarepublicanhater.blogspot.com/2013/12/what-makes-businesses-hire-supply-or.html

      For one thing, it's not necessarily the case that raising the price of apples will lower sales-the net effect on sales depends on any number of other factors. 

      Speaking of correlations one can't but notice that the time of the high MW was a country with a much bigger middle class than today's. There were far fewer workers desperately trying to scrape by today with a minimum wage over 50% lower than it was then.