Friday, December 01, 2006

Economists for the Minimum Wage

Greg Mankiw asked an economist who signed the open letter supporting a minimum-wage to explain his support:

My friend told me that he viewed the minimum wage as a second-best policy. He would prefer increased cash payments to the poor, such as a much-expanded earned income tax credit (EITC) or a more general negative income tax. But if his first-best policy was politically impossible, a minimum-wage increase was, in his view, an improvement over the status quo. He admitted that the minimum wage had adverse effects on employment, but he judged those to be modest in size. All things considered, he considered a higher minimum wage better than nothing.

I can understand the sentiment, but I wonder whether it would have been better to make this reasoning clear in the letter. If an expanded EITC is preferable, that should have been stated. Also, how "modest" are the jobs losses expected to be? I'd be interested to see what level of job losses is considered acceptable by minimum wage supporters.

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