Minimum Wage Dispute?

Classic economics would suggest that raising the minimum wage will kill hiring. I had my basic economics class in 1974 and the book set up a graph showing virtual mathematical certainty that increased wages meant decreased hiring.

Classic economics deals with wages, prices and employment as if they are some kind of “natural forces” like wind and rain. When I was 18 and 19, that kind of thing was persuasive. The young like certainty. And today, many both young and old find the certainty of that kind of free market fundamentalism very attractive. The Utopian vision of the invisible hand dispensing economic justice to the deserving and undeserving is a kind of pre-final judgment. An invisible but very equitable economic deity is the kind of idea that only someone desperate for simple solutions to complex problems can find believable.

There is nothing natural about an economic system. It is made up of fallible human beings. Everything about it is artificial, human created.

Let’s examine the economics in regard to Seattle’s minimum wage increase. This is from Huffpost Business:

Basic economic theory suggests that when you increase the price of something, demand decreases. In minimum wage terms, that would mean when it’s more expensive to hire people, businesses won’t hire as many people. But in practice, the research doesn’t bear that out. Studies show that small minimum wage increases don’t affect employment that much. 

Adam Ozimek, an economist at Moody’s Analytics and a frequent economics blogger, wrote Monday about some of the initial results out of Seattle, which started phasing in a $15 minimum wage in 2015. Very early results seemed to indicate that the higher minimum wage, which is only $13 as of Jan. 1, 2016, led to people losing their jobs. But more recent revisions to the local data more or less erase that dip.

“So far there haven’t been any smoking guns” to prove that higher minimum wages kill jobs, Ozimek wrote. 

This should simply not be possible. Under classic economics, there is no dispute. Higher wages produce job loss and reduced hiring. Yet, here the numbers do not show that.

I want you to remember this very clearly. Classic economics does not in practice seem to work. And we have been using the rules of classic economics for decades. What price have we paid for this “science” and its predictions?

I think the price has been enormous. I believe that millions of Americans are paid less, our economy smaller and financialization adopted as a national policy based on the predictions of classic economics.

It’s time for second look. The data from the Seattle minimum wage demonstrate serious weaknesses in the theories of classical economics.

James Pilant