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Minimum Wage: Hypocrisy

In his State of the Union address last week, President Obama made news by calling for an increase in the Federal minimum wage from $7.25 an hour to $9.00 an hour. The policy choice is designed to alleviate the economic conditions of low-income Americans, for whom there has been no recovery. Unfortunately, as expected, Mr. Obama’s proposal is more of a rhetorical ploy to cast himself as the people’s president, and one that will only continue to worsen an already tenuous economic situation.

Most everyone knows the standard, neoclassical stance on the minimum wage: imposing a price floor creates distortions in the market by fixing wages at levels above market equilibrium. Forcing employers to pay workers higher rates will benefit those workers who manage to keep their jobs, but the move will ultimately lead to less employment, harming the people at the very bottom of the skill ladder. Labor economists have previously produced empirical research that disputes exactly how much a marginal increase in the minimum wage truly lowers unemployment levels. Most notably, Alan Krueger, Mr. Obama’s Chairman of the Council on Economic Advisors, produced a study that suggested that a moderate minimum wage increase in New Jersey had no true effect on unemployment.

But such studies are distinctly in the minority; a majority of economists believe that just as with any price control, minimum wage laws will produce adverse results, particularly for those most in need of employment. Even pre-pundit Paul Krugman agrees, writing in 1998 that liberals should be careful when citing Professor Krueger’s study, saying “these advocates very much want to believe that the price of labor–unlike that of gasoline, or Manhattan apartments–can be set based on considerations of justice, not supply and demand, without unpleasant side effects.

Beyond the unemployment perspective, an arguably more compelling justification for minimum wage laws is the argument that setting a minimum work income will actually correct the economic distortions created by a welfare scheme. In other words, if an unemployed person living on welfare were to receive an effective guaranteed income higher than the equilibrium wage of the market, he or she would have no incentive to work. Under this this scenario, imposing a minimum wage would actually encourage the unemployed workers to find jobs, rather than allowing them to live through government income. But no studies I am aware of today suggest that the minimum wage will have such an effect. And this is not Mr. Obama’s justification for the policy change either.

For Mr. Obama and his Democratic allies, there is only one reason for raising the minimum wage – our moral obligation to the poor. Social justice, a sense of right, a commitment to all people of this nation inspires our president to create more people. But let’s pause here for just one minute to reflect on the Obama administration’s utter hypocrisy with respect to the poor. If you listened to just the media, you would think that only the Democrats were looking out for the poor. The Republicans, on everything from healthcare to tax policy to school reform, would be Congressional proxies of Wall Street elites, continually seeking to go after America’s lower classes.

A closer look at the record reveals the exact opposite. Mr. Obama’s administration has consistently supported policies that have worsened living conditions and opportunities for the poor. Rolling back school choice initiatives, weakening religious charities, imposing new taxes: each be rhetorically spun in the name of social justice, but in reality, each also serves to worsen the conditions of the working poor.

Just consider the Obamacare mandate (tax), which will largely strike poor people who will not buy insurance. Or take, for instance, the recent fiscal cliff resolution: President Obama championed an increase the payroll tax, the most distortionary tax in the entire tax code, and one that disproportionately affects those living on lower income levels. In fact, even if Mr. Obama’s recently proposed minimum wage increase were to go into effect, as much as 25% of his supposed additional wages would be eaten up by the payroll tax hike.

Politicians love talking about social justice and helping those whose need is greatest, but perhaps results are more important still. And as the record clearly shows, President Obama has been no friend of the American working class.

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