Debate Magazine

Illinois’ Proposed Minimum Wage Hike: The Pros and Cons

Posted on the 08 February 2013 by Reasoningpolitics @reasonpolitics

cashIn his recent State of the State address, Illinois Gov. Pat Quinn [D], called for, among other things, an increase in the state’s minimum wage. It would increase to $10 an hour from the current $8.25 over the next four years. If enacted, Illinois’ minimum wage would be the highest in the US.

I’d like to take a step back and really explore the pros and cons of the minimum wage. Instead of the typically boring left and right arguments (click the links if you’re interested in those), I’ve found some fresh perspectives on the issue.

Lets begin with a new argument against the minimum wage. It comes from the always worth reading Matthew Yglesias. He writes:

The problem is that while a given company can try to convince customers to accept higher prices in exchange for higher wages, in the economy as a whole this isn’t a matter of persuading anyone to accept anything. The Federal Reserve prevents the price level from rising more than 2 percent per year. The Fed is open to the idea that price increases driven by temporary fluctuations in global commodities should be ignored, but it deems price increases driven by higher wages to be especially alarming. So higher wages have to be processed as some combination of lower profits (which is fine at a time of record profits) and reduced employment (which is not so fine at a time of high unemployment).

Now the converse of this is that expansionary monetary policy—more tolerance for inflation—under today’s circumstances would almost certainly create jobs. And more robust job creation would reduce profit margins and increase wages on average. But real wages would fall for some people (I’m probably an example of such a person), and we might worry about the impact of that, especially on the lowest-wage workers. Pairing expansionary monetary policy with a higher minimum wage could make sense.

If you’re interested in delving a bit deeper into that discussion, The American Conservative has a direct rebuttal to Yglesias posted here.

The argument for the minimum wage comes, unexpectedly, from The American Conservative as well. Ron Unz makes a compelling case for why conservatives should support a higher minimum wage. I’ve actually written about this article before. Unz argument covers a broad landscape of reasons to increase the minimum wage, but income inequality and wage stagnation is a key focus:

My larger point is this. Wage stagnation is a serious economic and social problem with far-reaching consequences. You don’t get to say “I don’t care about that problem” because your ideology doesn’t have a ready-made answer.[emphasis mine] That applies to free-market-oriented conservatives and client-service-oriented neo-liberals alike, because solving the problem is going to require solutions from the “left” and “right” side of the policy box, and these solutions may be more complementary than contradictory. Using government power to increase the negotiating leverage of labor in the market is more likely to increase wages without taking those gains back through inflation if business owners have more freedom to respond creatively to an increase in labor costs. Giving business more freedom to respond creatively to an increase in labor costs is more likely to result in gains to labor, rather than just increased rents for capital and the businesses that service capital, if the government acts to increase labor’s negotiating leverage in the market.

I’ve tried to approach this old debate from a fresh perspective, particularly in recruiting a conservative embrace of an idea which has long been one of the cornerstones of the left.

Let me know of this approach has been persuasive to you, and what your thoughts are on the minimum wage.


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