The Political Economy of the Minimum Wage

Here’s a review of research on the minimum wage through 2006 from David Neumark, a center-left economist who is well known as a critic of minimum wages as poverty policy.

We review the burgeoning literature on the employment effects of minimum wages – in the United States and other countries – that was spurred by the new minimum wage research beginning in the early 1990s. Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect. A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages. In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries. Two other important conclusions emerge from our review. First, we see very few – if any – studies that provide convincing evidence of positive employment effects of minimum wages, especially from those studies that focus on the broader groups (rather than a narrow industry) for which the competitive model predicts disemployment effects. Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.

Let’s imagine for a moment that Democrats, rather than thinking that $15 minimum wages are innocuous, actually agree with this assessment  of the evidence. Why might they still support expansion  of the minimum wage, on political grounds?

a) Marginal workers become unemployed and more dependent on government, and are politically beholden to the party that supports more government benefits.
b) Supramarginal workers (those who don’t lose their jobs) become better off and are politically beholden to the party that supports high minimum wages.
c) A lower degree of labor force attachment among low-skill men and modestly higher wages among low-skill women mean that marriage rates decline as does shared childrearing. This means that women are more dependent on the party that supports increased wage supports specifically for women, subsidized childcare and health care, and active garnishing of male wages.
d) Because firms can’t hire low-skill workers at wages low enough to compensate the firm for the investment of training them, jobs are no longer a functional means of gaining skills and acquiring human capital, leaving official education as the only sanctioned means. This increases dependence on the political party that supports increased expenditure on education.
e) Input substitution towards capital and away from labor reduces the commonality of interests between regular citizens and their employers as an independent pole from political identity and identification with government.
f) When the minimum wage increases, employers must rely more heavily on the informal sector . To do so, employers need workers who can credibly commit not to blow the whistle on their employer– in particular, unauthorized immigrants . This solidifies support for the political party favoring lax immigration enforcement.
g) By giving a competitive edge to higher value-added national and multinational firms and harming lower value-added local firms, national elites benefit and local elites become more ineffectual.
Do I actually think, say, Andrew Cuomo, is deliberately courting any of these effects by signing a $15 minimum wage bill? Rubbing his hands together like Montgomery Burns? No, but if any of them occurred to him or any of his advisers, it would push them towards signing the bill rather than away from it.

More than half the workers in Mississippi, Alabama, Arkansas, Kentucky, West Virginia, South Carolina, and Florida make less than $15 per hour, putting aside people working under the table or people who are already priced out of the workforce.All of those states have under 60% employment rates, so under 30% of the aged 16 or over population is currently making a wage over the proposed minimum. In West Virginia, with an under 50% employment to adult ratio, this would be under 25% of the adult population.

When I say that much contemporary liberal left-politics is doing the work of global capitalism, it’s not because amorphous, adaptive, metastatic global capitalism wants more exploited workers- it has too many of those already. But capitalism wants politically neutralized, culturally unmoored consumers, of which it will always need more.

To paraphrase that one orc in The Return of the King, the age of the bourgeoisie is over, the time of the unemployed consumer has come.

7 thoughts on “The Political Economy of the Minimum Wage

  1. The problem with the cartoon is that most employers are not “Big Corporations” but rather mom-&-pop single proprietorships and LLCs.

    The big boys will counter higher minimum wage laws by a) out-sourcing higher-salaried jobs, b) in-sourcing immigrant employees who will work for less than do current higher-salaried workers, and c) increasing the use of robotics.

    These remedies are not available to the less mom-&-pop jog creators, who will be left holding the bag of higher minimum wages without the “Record Level Profits” to support them.


    1. Oh, I completely agree- I included the cartoon ironically, because I think it is how many proponents of the minimum wage like to portray the situation, when the reality is what you describe.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s