The Minimum Wage Explained

March 3, 2013

There is a rare gem in Sunday’s New York Times in the business section.  Former chair of the Council of Economic Advisers, Dr. Christina Romer, has provided a balanced, honest, accurate and concise summary of the arguments concerning the minimum wage. Given that a significant rise in the minimum wage was one of President Obama’s main initiatives in his recent State of the Union Address, this brief analysis should command a wide audience.

Two qualities of this essay particularly commend it.

First, as Dr. Romer identifies the several economic effects of the minimum wage, she takes care to estimate their relative magnitude. Yes, a rise in the minimum wage will produce unemployment, it will produce higher prices as business businesses pass higher labor costs on to consumers, and it will therefore conduce to inflation—but how much, compared to the redistributional benefits it may bring?

And second, Romer points out that there are other ways, better because more precisely targeted ways, to produce the same benefits as the minimum wage. So she puts the issue in its proper context.

If you want a quick lesson on an important, complex and often politically distorted issue, here’s your chance.