The Minimum Wage Shows Why (and How) We Should Vote Today

It is time for the states to lead.

Every once in awhile in the history of this great country of ours, the federal government just can’t get the job done. Partisan gridlock, constitutional uncertainty, public distrust all play a role. But one of the great strengths of the American system is that the states — those laboratories of democracy, as Louis Brandeis called them — can act when Washington will not. Abolitionism, women’s suffrage, health care reform, gay rights: All started at the state level.

This is one of those times. Our national system is inert. Our national leaders are mired in the muck of inaction.

And yet there is hope. For today is Election Day, and on this day, we will elect 36 governors. This is no time to stay home when the polling places are open. This is a time to choose leaders who will act where Washington has not.

I can think of no better example of the choice we face as a country today than the minimum wage.

After World War II, Congress set the minimum wage at approximately half the average wage in the country. In today’s dollars, it was over $10 an hour. Earning the minimum wage, one full-time worker could support a family of three above the poverty line.

Today, the federal minimum wage is $7.25, less than 36 percent of the average wage. It’s so low that it can’t even keep a family of two out of poverty.

Unlike Social Security or Medicare payments, the minimum wage is not indexed to the cost of living. Only Congress can raise it. The last time they did so was 2009. Democrats proposed raising it again earlier this year, but the majority of senators opposed it.

The feds have failed to act. It’s time for the states to lead.

And we have ample evidence that they can. Twenty-three states already have minimum wages higher than $7.25. Five states — Alaska, Arkansas, Illinois, Nebraska, and South Dakota — have an initiative on today’s ballot to increase theirs.

But not everyone is onboard.

“I don’t think it serves a purpose,” said Wisconsin’s Republican governor Scott Walker last month.

“I don’t think as governor I want to be the cause of someone losing their job,” said Greg Abbott, the Republican candidate for governor in Texas, in explaining his opposition to raising the minimum wage. Pennsylvania’s Republican governor Tom Corbett made a similar argument when stating his opposition last year.

At least they pretended to know what they were talking about. When Republican Governor Rick Scott was asked what Florida’s minimum wage should be, he said, “How would I know?”

These men are on today’s ballot in four of our nation’s largest and most influential states.

And they are tragically out-of-step with the lessons of economic history. In a recent study, the economists Hristos Doucouliagos and T.D. Stanley survey the vast research that economists have done measuring the impact of the minimum wage in recent decades — 64 papers in total — and they find “little or no evidence” that minimum wage increases caused job losses.

On the contrary, raising the minimum wage is a clear boost to the economy. In another recent paper, the economist Arindrajit Dube found that raising the minimum wage significantly reduces the poverty rate, a finding that is consistent with the other 12 studies economists have published in recent years measuring the same effect in different ways.

Only a politician severely out-of-touch with the modern economy could think otherwise. Today’s corporations don’t have to cut back jobs when wages rise. They have to cut back profits, which are at an all-time high. In the long run, they might not have to cut back anything. Higher wages lead to higher productivity, better health, fewer strikes, lower turnover, and higher consumption, which in turn leads to more demand for their products and therefore higher profits.

Individual companies may not want to raise wages if their competitors won’t, but when everyone does it, everyone benefits.

Trying to save money by keeping the minimum wage low is like trying to improve your health by starving yourself. It’s classic shortsighted behavior, hardly the visionary leadership that we’d like to see in the governor’s mansion.

That’s why today’s election matters. In this age of do-nothing politics, it’s easy to despair, but we must remember the intent behind the design. The same founding fathers who created a federal system that resists radical change also created a state system that encourages experimentation. Today we celebrate their creation, and we direct its attention to the challenges of our time.

If the feds do not act, the states will. We the voters will make sure of it.

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This op-ed was originally published in the Huffington Post.

Don’t Blame Colleges for Our Kids’ Problems. Blame the Economy.

As Congress tries to agree on a way to keep interest rates on student loans from rising, many Americans are questioning the value of an increasingly expensive college degree.

We’re talking about serious costs. Even in-state tuition at public colleges, supposedly the most affordable of all, is rising at more than twice the rate of inflation. The average cost for four years for in-state residents adds up to more money than most households earn in a year. Almost a third of American households have less than $10,000 in net savings to pay for at least $30,000 in college tuition. Even if students take Mitt Romney’s advice and “shop around” for the cheapest schools, they’re still going to have trouble making ends meet.

That’s why approximately 3 million households owe $50,000 or more in student loans.

At the same time, the rate of unemployment for 20-to-24-year-olds is twice the rate for 45-to-54 year-olds. Can it be that a college degree no longer buys what it used to?

Ask this question often enough, and you’re bound to find someone blaming it on “kids these days.” As if the jobs are out there, we’re just not willing to work for them.

The more sophisticated critics suggest that we’re experiencing a “labor mismatch,” where the skills of the workforce don’t meet the needs of the employers. Supposedly, colleges don’t teach us what we need to know to make a living anymore.

There are several ways to test this theory.

One measure is the “mismatch index” created by economists for specifically this purpose. The mismatch index compares the number of vacancies to the number of unemployed workers. If there really is a labor mismatch, vacancies should rise, but unemployment shouldn’t fall because the unemployed workers don’t have the skills to fill the vacant jobs.

But the mismatch index has not increased in the last decade. In fact, it was higher in 2003 than it is now.

Another measure is inflation. When the economy grows, companies should expand, but during a labor mismatch, they can’t. There aren’t enough skilled workers. So they raise prices instead. It’s the only way to keep revenues growing.

But inflation has been very steady and low throughout the past decade. In fact, it is now lower than it was five years ago.

Yet another measure is disparities in unemployment between different industries. For example, manufacturing jobs have been declining, and service jobs have been taking their place. If there’s a labor mismatch, we might see a recent rise in unemployment in manufacturing that outpaces the rise in other industries.

But that’s not the case. In fact, manufacturing has been one of the bright spots in this weak recovery. After losing jobs every year since 1997, the manufacturing industry has actually been increasing employment in the last two years.

Maybe we’re looking at the wrong industry. After all, the recession was caused by the bursting of the housing bubble. All those construction workers lost their jobs, and they don’t have the skills to become engineers or accountants or whatever the modern economy demands. Are they suffering from this mismatch?

Not really. While their unemployment rate is higher than most other industries’, it’s also declining faster than average. About 10 percent of unemployed workers used to work in the construction industry, the same as in 2005. Construction workers are actually finding new jobs at a faster rate than the rest of the unemployed, and they’re less likely to drop out of the workforce because they get discouraged at the lack of jobs. When they do get new jobs, over 70 percent of them return to the construction industry.

So what’s really causing high unemployment among today’s young adults? Probably a deadly combination of the weak economy and their lack of work experience. The most experienced workers are the first to be re-hired when the economy recovers. Unfortunately, the longer it takes the economy to return to health, the longer those young adults will lack work experience, and the harder it will be for them to catch up in the future.

Don’t blame the victims — or the colleges they attended, for that matter. Blame the people who wrecked the economy and sabotaged our children’s future.

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This op-ed was published in today’s South Florida Sun-Sentinel.

Taking the Income Inequality Debate to the Next Level

The Cato Unbound debates are good at exploring as many facets of an issue as possible, and then going back and forth a few times on each facet to make sure all the possibilities are fleshed out. Elizabeth Anderson says what I said about political power…only she says it better. John V. C. Nye says what I said about the financial crisis…only he says it better. And to my delight, Kenworthy gets into the discussion I’d been hoping for, starting with policy suggestions:

Potentially helpful policies include more aggressive early education, improved K-12 schooling, portable health insurance and pensions, more generous unemployment compensation, wage insurance, retraining, job placement assistance, a minimum wage pegged to inflation, and a beefed-up EITC for those without children.vv Continue reading “Taking the Income Inequality Debate to the Next Level”