2013 February 18 Monday
Alan Krueger Sees Benefit From Higher Minimum Wages

Alan Krueger, Obama's chairman of White House Council of Economic Advisers, did research back in the 1990s with David Card where they found evidence that a minimum wage has both positive and negative effects that cancel out with small increases. While some employers will want to hire fewer workers others will have an easier time filling open vacancies. These filled vacancies cancel out some or all of the effect of other employers hiring fewer workers.

Now the government comes along and says, "you have to raise the minimum wage." Well, this helps them to fill some of their vacancies. Now some employers might find that they no longer want to fill their vacancies when the minimum wage goes up, that's a conventional effect.

But others may find that they were reluctant to raise the wages before, but now the government required them to raise it, and they still want to fill those vacancies. I think that those effects all kind of cancel out.

When we have a moderate increase in the minimum wage, then the net effect on employment is pretty much a wash. Some employers see an increase in employment because they fill their vacancies, because they can reduce some inefficiencies and others will have a conventional effect of a reduction. The net effect is basically no change in overall employment.

Krueger argues for another benefit due to higher productivity. At higher wages employees are supposedly less likely to quit. So they build up more skills and become more productive.

In my view the merits of Krueger's views on minimum wages do not matter. Consider: if, on one hand, boosting minimum wages will raise productivity and living standards while having little impact on employment then it has got to be a good thing. We ought to try it. If, on the other hand, higher minimum wages will cut demand for unskilled labor then higher minimum wages will reduce the influx of illegal aliens. Again, benefit. Either way we get a benefit.

There's an even greater benefit from higher minimum wages in the long run: greater incentive to automate. Lots of restaurant automation robots in use and in development. We'll get faster roll-out of customer-facing food ordering panels. Why talk to the cashier when you can select what you want and then slide your own credit or debit card? I've ordered pizzas online and then walked to a nearby pizzeria to pick up my order. It was done by the time I got there.

While most people are aware of home robotic vacuum cleaners less well known are industrial strength robotic vacuum cleaners for offices. Higher minimum wages will accelerate the development and deployment of robots.

Share |      By Randall Parker at 2013 February 18 06:50 PM 

California kid said at February 18, 2013 7:23 PM:

A higher minimum wage shifts employment to the illegals. They are paid under the table in cash. Employers don't have to pay them minimum wage, and there are no taxes either. This is undoubtedly known by Obama and his administration. He has a big push to benefit Latinos at the expense of other sectors. I submit this is one of the ways he's doing it. Since so many of his regulatory and taxation policies harm business, employment becomes at best a zero-sum game during the next 4 years. This minimum wage policy is Obama shifting jobs to his supporters.

David said at February 18, 2013 10:34 PM:

California kid is right. Furthermore, Krueger's idea makes no sense. What kind of business has a position that needs filling; that does not get filled at a low wage rate; that somehow gets filled at a higher wage rate; and that position is not eventually withdrawn or the wage adjusted? It makes no sense.

Wait...government jobs have that profile.

My mistake.

deathdealer said at February 19, 2013 6:13 AM:

Well, higher wage rates might make someone more likely to value a job and this work to keep it vice the level of service you get from a $7/hour burger flipper. But it does make sense that raising the national minimum wage would shift businesses that a operating on razor thin margins to shift labor to illegals or other under-the-table employees. The ACA probably has the same effect with it's >50 employees rule.

Black Death said at February 19, 2013 8:09 AM:

@ California kid, David -

You are correct. This is a not-so-subtle move by Obama to strengthen his position with illegal immigrants and unions. A higher minimum wage will incentivize employers to pay illegals off the books. Since they are already breaking the law by doing this, they won't care about violating the minimum wage standards. And the illegal immigrants will be very happy to have the work and aren't likely to complain and thereby risk deportation. Obama isn't enforcing the minimum wage and immigration laws now, so why should he do so in the future?

Say what you want about Obama, but he's a shrewd politician. He knows the "Chicago way" - it's all about rewarding your friends and supporters (Hispanics and unions). And so what if the higher minimum wage increases unemployment among low-wage Americans - Obama doesn't care about them anyway. Just let them apply for welfare, unemployment, Medicaid, food stamps and subsidized housing. Is everybody happy?

BTW, most of Kruger's arguments are nonsense. If there is an economic advantage to employers in reducing employee turnover by paying higher wages, then they are free to do so. Who is better and more efficient at setting wages - business owners, responding to free market conditions, or a bunch of politicians and bureaucrats, all of whom have secondary agendas?

Mike M said at February 19, 2013 11:01 PM:

"At higher wages employees are supposedly less likely to quit."


Krueger's implication is that they are less likely to quit working because they have more incentive to work, the incentive being the difference between their wage and what they would receive if they didn't work. But let's back up the incentive train for a minute. If Obama wants to claim that raising the minimum wage is good because it increases productivity because workers have more incentive to remain on the job, then how does he justify raising income taxes or increasing welfare benefits, things that give workers less incentive to remain on the job? Frankly, Barry doesn't care about increasing productivity. His goal is NOT about making everyone's piece of the pie bigger. His holy grail is making everyone's piece of pie the same size - even if it necessarily means that everyone's piece is smaller. Obama prefers that we're all a bit poorer as long as we're more equal.

Obama has two goals in raising the minimum wage: First, it appeases the simple minded minimum wage workers whose gut instinct (rather than rational thinking) is that it rewards them and punishes those "evil" business owners. Second, it rewards the unions for their support. The union members are not low skill, minimum wage workers, but when the minimum wage is increased, the union wages are a lower multiple of the minimum wage making union labor relatively more attractive than when the minimum wage was lower.

Not only was Krueger's methodology flawed, but his conclusion was as stated was when the increase in the minimum wage was modest. Obama's proposed increase in the minimum wage is one of the largest in history! But is raising the minimum wage is the way to get people out of poverty, why stop at $9.00/hour. Let's raise it to $20/hour or to make everyone rich (by Obama's definition) $125/hour. Surely, he'll be able to fool the low information voters who equate money with wealth...at least until they realize that the increased labor costs for those goods and services (fast food and other items produced or provided by low skilled workers) they consume has resulted in increased prices that wipe out their higher wages. Obama and the left can regulate wages, but they can't guarantee jobs and they sure don't understand that it's increases in productivity, not money, that will raise people's standard of living and well being.

WJ said at February 26, 2013 3:37 PM:

"A higher minimum wage shifts employment to the illegals. They are paid under the table in cash."

No, it doesn't: A) it reduces the low-skill jobs businesses create, which means less demand for unskilled immigrants, legal or illegal; B) enforcement of minimum wage laws is something liberals emphatically support, so employers won't get away with it as often as you think, especially if they are large, publicly traded companies; C) most illegals work on the books.

Short of an actual, honest-to-God enforcement policy, which we will not get with a Democratic president and Senate, raising the minimum wage is one of the best things we can do to reduce unskilled immigration. Supporting a higher minimum wage will also make the GOP look more compassionate without offending its base.

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