business & professional » eco n o my
The Impacts Of
Minimum Wage
T
he economic recovery has
depend on the responsiveness of employ-
resulted in little to no wage
ers and workers to the mandated wage
gains for many workers. Low-
increase. If employers are sensitive to a
wage workers are finding it increasingly
mandated wage increase, their response in
difficult to escape poverty.
hiring fewer workers will be greater than
To alleviate low wages for unskilled
if they were not. If workers are sensitive
workers, local and state minimum-wage
to wage increases, more will be willing to
increases are in vogue. The national mini- work at the higher wage.
mum wage was implemented in 1938 and
An alternative to an increased
increased 23 times.
minimum wage is to modify the earned-
The national minimum wage is $7.25
income tax credit. This credit, paid to
an hour and was last increased in 2009.
low-income households as a tax refund,
Democratic presidential candidates are
increases as income initially grows and
proposing to increase the rate to $12 or
then decreases as income goes above the
$15 an hour. In Michigan, the minimum
poverty level. It has the advantage of pro-
wage is $8.50 an hour, and it is scheduled
viding low-wage workers with additional
to increase to $9.25 an hour in 2018.
income without interfering in the labor
Seattle has implemented a
market and causing employers to
$15-an-hour floor on wages.
reduce hiring or increase prices.
Mandating that employers
The earned-income tax credit
pay more for labor is a coun-
is not without disadvantages. For
terproductive way to help the
instance, the worker receives an
poor. Although some workers
after-the-fact lump sum, many
gain, others lose out on jobs
eligible households fail to claim
altogether, while consumers,
the credit and the credit phases
many of whom are poor, face
out as earnings increase causing a
Jonathan
higher prices.
disincentive to work longer hours
Silberman
Increasing the minimum
or have another family member
wage changes the behavior of
work.
workers and employers. For employers, a
A more effective policy to help the
minimum wage increase raises labor costs working poor than the minimum wage or
and reduces hiring. It creates an incentive
the earned-income tax credit is a direct
to substitute capital for labor (e.g. using
wage subsidy. A direct wage subsidy pays
tablet computers in a restaurant to take
additional dollars-per-hour to low-wage
orders and pay the bill) or to raise prices.
workers. From the workers perspective,
For workers, it increases the numbers
it is like a minimum wage increase. From
who are willing to work at the higher
the government perspective, it is like the
wage.
earned-income tax credit.
The difference between the reduced
A direct wage subsidy has several key
workers that employers want to hire and
advantages. It does not distort the labor
the increased workers available at the
market like minimum wage increases. It
higher minimum wage ultimately means
reduces the disincentive to work in the
that more workers are unemployed.
earned-income tax credit and workers
Economists refer to this as structural
receive a weekly pay gain.
unemployment or unemployment that
In addition, the cost of the direct wage
results because the number of jobs avail-
subsidy is more transparent than the
able is insufficient to provide a job for
earned-income tax credit. It is borne
everyone who wants one.
by taxpayers, disproportionally higher-
If the wage is kept above the equilib-
income households, rather than by some
rium level by government mandate, the
combination of employers, other workers
result is unemployment.
and customers with a minimum wage
While there is not much disagreement
increase.
that mandated government wages above
The minimum wage is a blunt, counter-
the equilibrium wage cause unemploy-
productive way to help low-wage workers.
ment to rise, the magnitude of unemploy- The earned-income tax credit is prefera-
ment is subject to debate. It will depend
ble, and a direct wage subsidy is the better
on the amount of the increase above the
policy for government to directly increase
market clearing or equilibrium wage.
wages for the working poor.
Raising the minimum wage in
Jonathan Silberman is a professor of economics
Michigan to $15 an hour will result in
at Oakland University. He writes a monthly column
more unemployment than the scheduled
on the economy for the JN. You can contact him at
increase to $9.25 an hour.
silberma@oakland.edu.
The extent of unemployment will also
*
26 January 14 • 2016
Americans
Vote
Their
Concerns
N
o question — these are difficult
with government dissatisfaction a clear
times. Day to day, we think
second. Immigration, terrorism and
about ISIS, the debates over
gun control are also major concerns, but
immigration and guns, and the new
they rise and fall with current events.
“style” of knife-wielding terror attacks in Gallup reported that terrorism moved
Israel. More telling is that we move from from 3 percent in early November to 16
play to pause awaiting the next
percent after the Paris and San
“breaking news” alert on Fox
Bernardino attacks. After 9-11,
or CNN with an anxiety apex
46 percent of Americans listed
as to whether an active terrorist
terrorism as their No. 1 concern.
shooting is in progress and
When it comes to the
where it’s unfolding.
November election, the linkage
When I enter a mall, theater
on these issues and the impact
or public event, I consciously
of terror attacks is a potential
accept the risk and bank on
game changer.
the long odds in my favor that Ken Gross
Prior to the late autumn
nothing will happen — here
attacks, economic issues tallied
and now. While I accept the
at 39 percent as Americans’ No.
odds, I’m not happy about it;
1 concern. The other categories
and, like many Americans, I’m
combined — terrorism,
angry. My thoughts are simplistic — we
government dissatisfaction, gun policy
simply work too hard to have to endure
and immigration — only totaled
this.
30 percent. After the Paris and San
If our enemy is so bold as to tell us
Bernardino attacks, economic issues fell
they are coming and they intend to kill
to 21 percent and the other issues surged
us, our children and our parents —
to 41percent. That’s a 29 percent shift!
without regard to whether they die in
Come next November, if economic
the process — that’s quite the warning.
issues are the leading concern among
Imagine if you received a message like
Americans, given that we have come
that with your name as the recipient?
a long way since the recession, the
In the face of this threat, it does not
party complaining about how bad the
surprise me that Republican presidential economy is may find it a tough sell in the
candidate Donald Trump’s simplistic
voting booth.
and somewhat far-fetched approaches
On the other hand, if the greater
to such matters as immigration, border
concern is of terrorism combined
closing and crushing the enemy have
with immigration, gun policy and
appeal. Regardless of how offensive
dissatisfaction with government, you
Trump is, to many he is striking a chord
may see a different outcome in the
that is ripe for the pickings.
voting booth.
What does surprise me is that
To me, the most disturbing thought
the media and several of the other
is that the persons who carry out these
candidates seem to be so puzzled by his
heinous acts of terror may be in the
popularity. Fear and utter frustration
position to influence who we elect as the
with the ineptness of our government
future leadership of our nation.
explain this phenomenon.
Ken Gross is an attorney with Thav Gross and host
Since the economy’s collapse in 2008,
of Law and Reality that airs on radio Tuesdays from
the two most consistent concerns to
noon-1 p.m. on WCHB 1200 AM/99.9 FM, Saturdays
Americans have been the economy and
from 9-10 a.m. on WDFN “The Fan” 1130 AM, and on
dissatisfaction with our government.
television at 11 a.m. Sundays on TV20.
The leading concern (by two times in
number) has been economic issues —
*