White House Council of Economic Advisers Chairman Alan Krueger is the brains behind President Obama’s push for a hike in the federal minimum wage. In 1996, he wrote a famous book titled, “Myth and Measurement,” purporting to show that minimum wage hikes have no effect on unemployment. Not only that, but in this interview with PBS, Krueger goes on to explain why businesses should get down on their knees and thank the federal government for forcing them to pay their employees more:
PBS: What Are Some Benefits for Employers When Minimum Wage is Raised?
Alan Krueger: Another factor that helps offset the cost of the minimum wage is that it helps employers sometimes find inefficiencies.
For example, if workers are paid more, they have lower turnover. Turnover is costly for employers, especially when they have to train new workers coming in and when they have to search for workers. So, the higher wages help to increase productivity. And the employers might also discover some ways of saving waste that they had before when the minimum wage increases.
In addition, some employers, at the current minimum wage, can’t hire all the employees that they want. They’re reluctant to raise their wages because if they raise the wage for new workers, they’re going to have to raise it for everybody else. But as a result (because they don’t raise wages), they struggle with very high turnover, with vacancies.
Now the government comes along and says, “you have to raise the minimum wage.” Well, this helps them to fill some of their vacancies. Now some employers might find that they no longer want to fill their vacancies when the minimum wage goes up, that’s a conventional effect.
But others may find that they were reluctant to raise the wages before, but now the government required them to raise it, and they still want to fill those vacancies. I think that those effects all kind of cancel out.
When we have a moderate increase in the minimum wage, then the net effect on employment is pretty much a wash. Some employers see an increase in employment because they fill their vacancies, because they can reduce some inefficiencies and others will have a conventional effect of a reduction. The net effect is basically no change in overall employment.
PBS: Say I’m the employer. How is the government helping me with the problem here?
Alan Krueger: Well, the government is not increasing your profit, right? Because you always could have increased the wage yourself. So it’s profitable for you to keep the wage low, perhaps as low as the minimum wage and getting by with high turnover and vacancies and hoping that you’ll find someone who’s coming in, who’s willing to work at the current minimum wage.
So on your own, you don’t want to raise the wage. But the government steps in and says, “You have to raise the minimum wage now.” Then you might rethink your strategy. And you might say, well, now I can fill some of these vacancies, whereas before, I was making a higher profit, but I was struggling to get enough employees.
When the government requires me to raise the wage, I have to raise it for everybody, so I don’t have this equity issue about paying more for the new workers, compared to the workers who I already have, because I’m required to pay