To many economists, the unemployment insurance system is, at best, a necessary evil: The system helps laid-off workers survive hard times, but at the cost of economic efficiency. Unemployment benefits, the argument goes, reduce the incentive that unemployed workers have to seek and accept new jobs.
This is the story of how the fast food industry and
its conservative allies sought to discredit two distinguished economists, and
how the attack backfired. The economists in question committed the sin of
conducting research that challenged the conventional view of the minimum wage.
Their attackers may have committed rather cruder sins.
Almost every introductory economics textbook warns that raising the minimum
wage will cost jobs. Assuming a standard model of the labor market, the
reasoning is a straightforward variant of the law of supply and demand: If you
raise workers' wages, you increase the price of laborand firms will
naturally hire fewer workers.
Free markets are supposed to have made the United States the world's most fertile ground for entrepreneurial activity. So how come only about 8 percent of Americans are self-employed, compared with much higher self-employment rates in countries alleged to suffer from "Eurosclerosis?" The United States, for example, trails Belgium (15 percent), France (11 percent), Germany (10 percent), Italy (24 percent), the Netherlands (11 percent), Spain (21 percent), Sweden (11 percent), and the United Kingdom (12 percent).
Business opponents of the minimum wage often argue that it is little more than an "entry-level" wage--water-wings for those workers taking their first dip in the labor pool--and therefore needn't be high enough to sustain a worker over many years. A recent study by two government economists, William Carrington at the Bureau of Labor Statistics and Bruce Fallick of the Federal Reserve Board, however, has found that a significant number of new workers stay at or near the minimum wage long after their initial foray into the labor market.
With unemployment at a 30-year low, opponents of current proposals to raise the minimum wage by a dollar to $6.15 an hour will be hard-pressed to argue such a move will cost low-wage workers their jobs. But what about that other stock argument that a higher minimum will reduce training for low-wage workers?
New research by MIT economists Daron Acemoglu and Jörn-Steffen Pischke casts doubt on that claim. The researchers noticed that training for low-wage workers fell substantially during the 1980s--a period when the inflation-adjusted value of the minimum wage plummeted. Why didn't the wage decline allow employers to invest more in training?