Minimum Wage Increases: Economic Snake Oil

Senator Stephen Sweeney (D-Gloucester) has the cure for our economic ailments, ...

Senator Stephen Sweeney (D-Gloucester) has the cure for our economic ailments, …

Checking out the news of the day on facebook, a friend posts this article for our consideration, courtesy of ThinkProgress:

New Jersey Governor Vetoes Minimum Wage Increase

The New Jersey Governor at issue is Republican governor Chris Christie. The tone is not celebratory. My facebook friend lamented: “Really, he might as well just go re-flood people’s homes.” Is it that bad? I’m not convinced.

The thrust of the article is that the people of New Jersey would have bathed in fountains of prosperity, if only the governor would have been willing to force employers to pay their employees more money. The bill, as it was passed, would have increased the minimum wage from its current $7.25 to $8.50. Christie vetoed the bill conditionally, saying he would sign it if the increase were lowered to $8.25 and phased in over three years. This was not good enough for Pat Garofalo, the author of the ThinkProgress piece, who reasoned:

As the New Jersey Policy Perspective noted, “the first year increase proposed by the governor of 25 cents will be erased by inflation by the time the third year kicks in its 25 cents.” Here are more benefits that Christie denied to working New Jerseyans: 

– Wages would have increased by $439 million in the first year;

– Overall economic activity would increase by $278 million in the first year;

– The equivalent of 2,420 new full time jobs would be created;

– 537,000 people would have received an increase in wages: 307,000 New Jerseyans making between $7.25 and $8.50 per hour would’ve seen an immediate raise, and 230,000 New Jerseyans making between $8.50 and $9.75 per hour would’ve seen a raise as pay scales were adjusted upwards.

Pat Garofalo links his source, but I did not find it to be immediately helpful. What are these figures? Are they, like, net figures that account for those who will lose their jobs as a result of the minimum wage increase? It doesn’t say. Neither article says anything about potential job losses. You don’t see anywhere anything like: “3,260 jobs would be initially lost, but this will be offset by a future gain of 5,680 jobs, for a net gain of… .” No. Nothing like that—and I just made up those figures by way of example. I don’t know what the actual figures would be. They aren’t the basis of my skepticism.

...but this guy won't let us take it all at once.

…but this guy won’t let us take it all at once.

I imagine I’m supposed to read the 307,000 figure as the total number of New Jerseyans working in the relevant wage bracket, all of whom would have enjoyed extra free spending money but for Chris Christie’s sardonic veto. I imagine, therefore, that Pat Garofalo will have us also believe the following blithe reverie:

On the Monday following the minimum wage increase that wasn’t, 307,000 out of 307,000 New Jerseyans who previously earned between $7.25 and $8.50 per hour would have received joyful memoranda from their human resources departments, each congratulating them on the up to $1.25 extra cash per hour that they will henceforth receive as pay for doing—wait for it—no extra work. Likewise, zero out of 307,000 New Jerseyans who previously earned between $7.25 and $8.50 per hour would have received such somber memoranda as, “We regretfully inform you that, whereas we happily employed you at the previous minimum wage of $7.25 per hour, we can no longer afford to employ you at the present minimum wage of $8.50 per hour. You have until tomorrow to clean out your locker. Feel free to use us as a reference.” None. Zero people will receive this latter memo. Not only that, but the economy will magically create 2,420 jobs, to boot! Really? I find that very difficult to believe.

Pat Garofalo’s article reads to me like the label on a bottle of snake oil: “Relieves instantaneously! Government liniment cures all aches and pains! Genuine article! Just sign the bill and amazed as your economic woes melt away!” I simply don’t believe it. I can’t begin to believe it until Pat makes some acknowledgement of some person somewhere who might not have a great day following this minimum wage increase.

Jonathan Haidt said something very wise in a blog post over at TED.com that I like to bring with me to every piece I evaluate:

[W]hen we want to believe a proposition, we ask, “Can I believe it?” — and we look only for evidence that the proposition might be true. If we find a single piece of evidence then we’re done. We stop. We have a reason we can trot out to support our belief. But if we don’t want to believe a proposition, we ask, “Must I believe it?” — and we look for an escape hatch, a single reason why maybe, just maybe, the proposition is false.

When confronting an idea that one doesn’t want to believe, it helps to give it the benefit of some doubts and ask “Can I believe it?” I can say comfortably that, so long as this ThinkProgress article fails to acknowledge even a potential side effect of injecting even more force into a previously voluntary system, I simply can not believe it. It is too good to be true.

I’ll close with Walter Williams, who is more respectful of economic reality:

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