Wage Piece Misses Point on Employee Behavior
Robert Eisner’s “Despite Critics, Hiking Minimum Wage Makes Good Sense” (April 23) shows he misunderstands human nature and business. He presented an example to illustrate how raising the minimum wage would increase the profit for a small business and thus increase employment.
His example is of a small business that can’t find someone to hire at $4 an hour, the minimum wage, but can find someone at $5 an hour. The reason the employer could find a worker to hire at $1 an hour above the minimum wage was not the actual value of the wage, $5, but in fact that the wage was above the minimum. The worker he hired at $5 felt he was worth more than the minimum. If the minimum was raised to $5 an hour, that new worker would want $6 an hour.
I have seen the law of supply and demand works in employment just like it does in merchandising. If there isn’t anyone willing to work for the minimum, then the employer has to raise his wages, not only for the new employee but for the old ones also. This holds true no matter what the minimum wage is. The minimum just sets a floor by which all others are measured.
A higher minimum wage causes a subsequent ripple effect that increases wages upward through many higher levels of employment. After a period of time, an equilibrium would theoretically be reached with all wages higher, and, if business passes along these higher costs, a higher cost of living. All of this decreases our competitiveness in the world economy.
WILLIAM W. IRWIN
La Habra
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Robert Eisner argues that there are theoretical conditions under which a minimum-wage increase will not lead to employment losses. Unfortunately, the only empirical example he can cite on this phenomenon is the Card-Krueger fast-food study from New Jersey.
That he would even cite this paper to support his theory is more than a little surprising. He opens his article by quoting from two recent reports, one of them mine, which demonstrated that the data used by Card and Krueger were grossly flawed and the findings based on them immaterial. Those two reports did not present theoretical or ideological arguments on minimum wages; they reported empirical findings that demonstrated significant shortcomings in the work Eisner chose to cite.
Nevertheless, Eisner does deserve recognition for his article: He may be the last person to rely on that fast-food study to defend higher minimum wages. Even Labor Secretary Robert Reich, formerly the study’s biggest fan, is looking for a new mantra to chant.
RICHARD BERMAN
Executive Director
Employment Policies Institute
Washington
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Robert Eisner has completely missed the boat with his argument. Has Eisner forgotten about a little something called inflation?
A higher minimum wage pushes wages upward across the board, while businesses pass this increased cost on to the consumer through higher prices. So what if a full-time minimum-wage worker will now make $12,500 annually rather than $10,700 if his-her buying power hasn’t increased at all? Simple economics tells us that a nominal increase in wages means nothing to the worker without a rise in real wages accompanying it. This real wage increase will not be accomplished in the proposed manner.
Maybe Alan Greenspan and the Fed can work on stabilizing our sickly and plummeting dollar to restore the value that $4.25 per hour once had. Let’s not compound the problem and give in to the temptation of raising the minimum wage, increasing inflation and devaluing the dollar even further. How about allowing the good old economic theory of supply and demand to dictate the price of labor for a change?
MARK CHRISTENSEN
Mission Viejo
