Minimum Wage Hike Coming At The Worst Time Possible

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Ah, this question. The minimum wage/employment question. It’s always guaranteed to set off a firestorm of dueling economic studies, showing either that an increase has a terrible effect on unemployment (hitting  youngsters and African Americans particularly hard) or it has no effect.

Econ prof David Neumark decided to wade into the muck with a WSJ op-ed today, nothing that in July the Federal Minimum Wage will jump from $6.55 to $7.25, which he argues is particularly unfortunate timing. Indeed, if you accept basic economic orthodoxy, it doesn’t make much sense to make labour more expensive at the same time as companies are weighing job cuts.

Neumark cites a lot of studies warning of the likely ill effects of the change and thinks that, if nothing else, the change should be delayed.

Needless to say, that will never happen given the current political climate.

No doubt, Neumark’s supporters will cite the experience of the Great Depression, when government price controls and minimum wage hikes are thought to have contributed to widespread unemployment. But bear in mind, that was a period when we had sustained deflation. The price of everything but labour was falling. If the Fed achieves its goal of inflating like crazy and staving off what Ben Bernanke calls “it”, the effects may not be quite so pernicious.

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