There is . . . a large body of research, most of it connected with increasing the minimum wage, that shows that the demand for labor is not very responsive to moderate changes in the cost of labor. See for example, "Time-Series Minimum Wage Studies: A Meta- Analysis," by Princeton University Professor Alan Krueger (with David Card), who is currently the chief economist in President Obama's Treasury Department. See also "Making Work Pay: The Impact of the 1996-97 Minimum Wage Increase" by Jared Bernstein (with John Schmitt), the chief economist for Vice President Joe Biden.
If increasing the cost of labor 15-20 percent by raising the minimum wage doesn't lead to measurable job loss then it is implausible [that] reducing the cost of labor by 15-20 percent will lead to a measurable increase in the demand for labor. . . .
In a comment on the same Baker post, skeptonomist adds some meat to the above:
What motivates employers in the real world to hire more workers? An actual increase in demand - they can't keep up with it with their current work force. What would be the first-order result of their taking on more workers, with or without tax breaks? An increase in supply - not likely to increase their profits unless demand has also increased (which in theory may eventually happen, but is not within their decision-making horizon.
These supply-side solutions are basically an attempt to pay employers to go against rational free-market decision making. . . .
And so the tax breaks will have little effect. There are other economic perversities in Obama's proposal. Baker notes, for example, that tax-incentivizing employers to increase current workers' hours means you're encouraging them NOT to hire more workers.
It certainly would be nice if the President were instead doing the right thing, proposing to put hundreds of thousands of people to work rebuilding our nation's dangerously neglected transportation infrastructure, perhaps even with a special emphasis on greening the way we commute.
But, okay, that's wishful thinking now, I suppose. Still, now is not the time for supply side voodoo economics. The least the people can ask for is reality-based kind. Democrats: remember the minimum wage increase debate! |
