Saturday, February 25, 2012

Minimum wage hike as a stimulus

That's what some pols in NY and NJ are pushing for.  The minimum wage is currently $7.25 but Democrats and some Republicans in the NJ legislature are looking for an election year bump to $8.50.  Why?  They can claim they are helping the working person, plus it does not have any effect on the state budget. 

To provide some perspective, the federal minimum wage was increased in three steps from $5.15 at the beginning of 2007 to $7.25 by the end of 2009, right at the time the labor market was in its worst shape since the 1930s.  I have not seen any careful studies yet, but you can bet that the minimum wage increase made the unemployment rate higher than it would have been otherwise.  If the NJ increase goes through, it would amount to a 65% increase in just five years. 

Studies have shown that most recipients of the minimum wage are teens and young adults, few of whom are heading households and many of whom are working part-time.  One predictable consequence: their employment will fall.  Doubt the pols want to take any credit for that.

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