By: Blake Dixon
Last week, Dr. Stan Veuger of the American Enterprise Institute and Ms. Rachel West of the Center for American Progress engaged in a spirited debate before members of the Yale community. The debate centered on the proper role for minimum wages in the labor market. As a Buckley Fellow, I was given the chance to sit down and speak with Dr. Stan Veuger before the debate commenced. For anyone interested in wage policy, his comments deserve thoughtful consideration.
I first asked Dr. Veuger why support for a minimum wage remains strong in spite of the conclusion reached by classical economic theory that a price floor on labor causes unemployment. Dr. Veuger responded that one reason is that the policy sounds, at first blush, to be sympathetic. He mentioned that it appeals to a widespread feeling that if you work you should be able to take care of yourself. He also pointed out that corporations are often framed as the “bad guys” in American politics, and that a minimum wage policy appears to be a case in which those “bad guys” lose and the “good guys,” i.e. low-income workers, win.
One reason that Dr. Veuger gave for the policy’s enduring popularity was, I feel, particularly insightful, namely that it has the appearance of relative simplicity. He explained that this apparent simplicity probably arises because, unlike other poverty relief measures, a minimum wage does not require an administrative bureaucracy. Dr. Veuger was careful to point out that this is not necessarily true, but that this is merely how the policy is perceived.
Finally, Dr. Veuger believes the policy is embraced by many politicians simply because it is popular—especially during election years.
Dr. Veuger’s explanation for the popularity of a minimum wage is perhaps discouraging to those who prefer alternative policies. How, then, might one best make the case against a minimum wage?
Dr. Veuger’s answer was that those who wish to make the case against the minimum wage should emphasize the following fact: less than 1⁄4 of high school dropouts under the age of 30 are employed. While these people could benefit from low-paying jobs, minimum wages often cut them out of the labor market entirely. In fact, Dr. Veuger pointed out that this particular demographic fared far worse after the federal minimum wage increases were implemented during the financial crisis (after accounting, as I was sure to clarify, for the economic decline itself). The great irony, according to Dr. Veuger, is that the minimum wage often harms the very people its proponents suppose they are helping.
In addition, Dr. Veuger pointed out that a minimum wage isn’t even a particularly good mechanism to redistribute income. According to him, only about 15% of the resulting increases in wage payments would go to families below the poverty line. To make matters worse, a minimum wage would raise the prices on products that low-income workers disproportionately purchase .
I asked Dr. Veuger about the most attractive alternatives to a minimum wage. If a minimum wage is not desirable, then what might be a better way to address the plight of the working poor? Dr. Veuger suggested that an earned income tax credit, which rewards low-income households with a refundable tax credit, might be a suitable candidate.
Although Dr. Veuger pointed to some difficulties with such a policy, including its lack of political savvy and the challenges involved in properly administering it, he was clear that it also came with some important advantages. Notably, it would be a much more effective means of delivering assistance to low-income households than a minimum wage. It would be cheaper, too, than a Milton Friedman-style negative income tax. The most important consideration, he said, would be how best to phase out the system, as policymakers obviously would not want to damage work incentives.
Many, but not all, of these points were repeated in Dr. Veuger’s debate with Ms. West. I thoroughly enjoyed our conversation, and thought the debate was well worth attending. I thank Dr. Veuger for visiting Yale and for sharing his knowledge with our community.
Blake Dixon is a senior in Ezra Stiles College.