$100 minimum wage

National Review, May 6, 1996 by Alan Reynolds

If a $5 minimum wage would be good for the country, a $100 minimum wage would be great!

ON April Fool's Day, the Wall Street Journal published a diverting little piece in defense of a higher minimum wage. It must have been important, because it took five people to write it -- Treasury Secretary Robert Rubin, Commerce Secretary Ron Brown, Labor Secretary Robert Reich, and the Administration's top economists, Joseph Stiglitz and Laura Tyson. These distinguished co-authors "insist that the minimum wage be a living wage." "Every member of the President's economic team believes this step will increase wages without costing jobs." In fact, a "living" minimum wage is not considered an economic issue at all, but "an issue of values and the kind of society we would like to be. . . . If we value work and we value families, we ought to raise the value of the minimum wage."

The President's economic team must not value work and families very highly. They define a "living wage" as only $5.15 an hour. Is this really "the kind of society we would like to be"? Wouldn't we like everyone to be rich? If a small increase in the minimum wage is a good idea, than a big increase must be a better idea. What Clinton's people really ought to be doing, if they have the courage of their convictions, is pushing for a minimum wage of $100 an hour.

In fact, a $100 minimum wage would solve all the economic problems that have caused the greatest consternation among economists of the liberal persuasion, including Robert Reich and Laura Tyson.

Consider, first, the impact on average productivity and wages. Critics of U.S. economic policy complain that productivity growth has been "anemic" since their favorite year, 1973, when Americans last enjoyed runaway inflation and wage controls. Weak productivity growth since 1973 has produced flat or falling real wages, declining living standards, and the disappearance of the American Dream. As the Clinton team's Wall Street Journal article put it (conveniently obscuring huge differences between the Seventies, Eighties, and Nineties), "Stagnant wages are a 20-year problem."

With a minimum wage of $100, however, the genuine stagnation of productivity and wages that has persisted ever since 1993 would be instantly solved. Average productivity would soar. Only those capable of producing at least $100 worth per hour would be employed, so average productivity and average wage figures would no longer be diluted by all those wretched menial jobs.

Second, ever since Mr. Clinton took office, each year's Economic Report of the President has deplored an "appalling" gap between the highest and lowest wages. Once again, the $100 minimum wage provides a quick and certain solution. Very few people earn much more than $100 a hour, so the gap between the highest and lowest wage would narrow quite dramatically.

Third, America's low "savings rate" has been yet another source of anxiety. Since tax rates went up in 1993, Americans have been saving only 4.2 per cent of whatever income they have left. But is it not obvious that people earning $100 an hour will save a much larger percentage of their incomes than people earning $5.15 an hour? Skeptics may complain that very few people will be earning any income at all after the minimum goes to $100. Such nitpicking misses the point. The "savings rate" means the percentage of after-tax income saved, not how many dollars are saved, and Laura Tyson, among others, has often explained that it is the savings rate that really matters.

The most common objection to a $100 minimum wage is that it would supposedly increase unemployment. Like the confusion between savings and the savings rate, this complaint is based on a statistical misunderstanding. To be counted as unemployed, people have to be looking for a job. In reality, only a few foolish and stubborn people would bother to keep looking for jobs if they could only be hired at $100 an hour or more. With very few people looking for work, it follows that very few would be unemployed.

In short, a minimum wage of $100 an hour would raise average productivity, narrow the gap between low-wage and high-wage workers, increase the savings rate, and have no "significant" effect on the unemployment rate. President Clinton's top advisors appear to agree with this line of reasoning, since they endorse a minimum wage of $5.15. If it makes sense to make it illegal for employers to offer jobs at less than $5.15 an hour, however, why stop there? Why not a minimum wage of $100 an hour?