Sen. Baucus, Getting the Facts on Minimum Wage

By January 10, 2007General

New Senate Finance Committee Chair Max Baucus (D-MT) is having hearing this morning on, “Tax Incentives for Businesses in Response to a Minimum Wage Increase.” For this, he has incurred the ire of WaPo columnist Steve Pearlstein. That’s OK, it’s to be expected. But what’s irritating is that Pearlstein dismisses as, “nonsense” the very real and legitimate arguments against minimum wage increases. Unfortunately, some of Pearlstein points qualify as nonsense as well.

Pearlstein disputes the fact that the majority of job creation comes from small business, calling it a “canard….perpetrated by the small business lobby.” He cites an AEI study as saying that small and large business create jobs in the same proportion (Emphasis ours). Well, that’s right, but since the vast majority of employment is in small business, an increase in jobs in small business proportional to the increase among large businesses means more jobs being created by small business. But in fact, it’s not proportional at all. According to the Census Bureau, for the last year that data is available, 2002-2004, the economy created 2.7 million jobs. A full 83% of these jobs were in firms that employed under 500 people, while only 17% of the 2.7 million were created in firms that employed 500 and over. As for impact on small business, there is always a job loss when the minimum wage is raised, the only question is how severe. Sen. Baucus is right to plumb the recesses of facts behind the politics of a minimum wage increase.

The WaPo also profiles a minimum wage worker on the front page today who is typical. He is young, single, lives at home, is not the family breadwinner, will presumably work his way up the food chain. The minimum wage population is dynamic, not static. It is a bottom rung, and entry level. Think of it this way: Have you ever made the minimum wage? Do you make it today?

We don’t have a dog in this fight, as manufacturers pay far in excess of the minimum wage, but this is a political issue, not an economic issue. For all those on the left who cry crocodile tears over the minimum wage workers, there is one sure-fire way out of poverty: Increased education and skills. If we put our efforts there, we will make the minimum wage the quaint anachronism it deserves to be.

UPDATE: (By Carter Wood 2:15 p.m.) Did you notice this Pearlstein line? “Baucus is a Democratic senator from the Republican-leaning state of Montana, which means he is on the political equivalent of the endangered species list.” Really? Montanans elected Jon Tester, a Democrat, over incumbent Republican Conrad Burns in November’s Senate elections. That makes the state’s two U.S. Senators Democrats. Montana’s Governor, Brian Schweitzer, is also a Democrat.

Seems like a real stretch.