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Peterson: Hiking minimum wage is feel-good economics

Posted: February 24, 2013 - 1:28am
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Time for a pop quiz.

President Obama’s proposal to raise the federal minimum wage from $7.25 to $9 an hour:

A: Would lift some low-wage workers up a rung on the ladder out of poverty.

B: Would mean fewer jobs for inexperienced, low-skilled applicants, that is, mostly minority youths.

C. Is almost irrelevant in high-wage states and many others because most workers there already make at least nine bucks an hour — or close to it.

D. Because C’s largely true, the proposal in effect is mostly a wedge issue aimed at splitting off independents from Republicans.

Answer: All of the above.

Seventy more dollars a week might mean riding the bus to work instead of walking dangerous streets in bad weather, pre-school for your kids or health insurance for your family. The upsides — make your own list — are real, important and palpable.

But the downsides, though — like most things that probably aren’t going to happen — are less tangible but nevertheless real and important.

Fewer people can do work that employers think is worth $9 an hour than $7.25 an hour. Some would retain their best entry-level workers even at the higher rate, but at least a few would lay off people or shorten their hours.

Other would ramp up automation, outsource work overseas or try to offset swollen payrolls by marking up their products and services.

What wouldn’t happen is the creation of many new $9-an-hour slots for those most in need of a spot on the first rung of the economic ladder. And especially not as long as the economy remains iffy and angst persists about the impact of Obamacare on businesses.

Sure, some economists reject such scenarios. But, if they’re right, why not support Occupy Wall Street’s call for a $20-an-hour wage floor? Indeed, why stop there? Why not $100 an hour? Because even naysayers know labor is a commodity and that prices make a difference at some point.

For minimum-wage levels to much matter, they have to be higher than what a lot of people are earning. But they can’t be so high that they price a big share of the actual or potential entry-level workers out of the market.

So as a practical tool of economic policy, minimum-wage laws are mostly tinkering around the edges. Thus, as Sweden-based economist Stefan Karlsson recently wrote, the president’s proposal would at once kill jobs and boost paychecks, but not very many of either.

But it remains a potentially powerful political weapon. Polls show it’s overwhelmingly popular; one found that nearly half of even Republican respondents liked the idea. So GOP leaders can’t resist it without looking like Mr. Scrooge or the Grinch; take your pick.

Not that we should feel sorry for them. After all, they perfected the art of pandering to Middle America on wedge issues. Consider — to name just a couple — their posturing about illegal immigrants and gay marriage, that is, before they were cool.

Even so, Obama’s minimum-wage proposal is a little like his new plan to let women serve in direct combat roles. Both enjoy widespread support and likely would do both some good and some harm, but not nearly as much of either as their ardent backers or foes insist.

Unless, of course, you count the political mileage they will earn the president and his party — and the electoral fallout for GOP bitter-enders. In raw political terms, he’ll win the upcoming congressional skirmish over the minimum wage, no matter how it turns out on Capitol Hill.

Meanwhile, we can nod our heads, feel good and write our congressmen every time he intones that no one who works 40 hours a week should live in poverty.

Sure, there are ways — such as education, training and restoring the payroll tax cut Obama and Congress just ended — to help the working poor.

But exercises in feel-good economics — such as his proposal — aren’t among them.

Larry Peterson is a former Savannah Morning News reporter.

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