"Since the last time this Congress raised the minimum wage," President Obama said during his State of the Union address, "19 states have chosen to bump theirs even higher. Tonight, let's declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty -- and raise the federal minimum wage to $9 an hour."
The only thing surprising about Obama's call for a higher minimum wage is that it took him so long to make it. The chairman of Obama's White House Council of Economic Advisers, Alan Krueger, is the co-author of a paper, legendary among liberals, purporting to show that minimum-wage increases had no effect on unemployment in two California and New Jersey counties. In fact, Krueger argued, government wage controls are great for businesses. They increase demand for goods and services, force business owners to rethink their business models, increase worker productivity, and decrease employee turnover. By his reckoning, it's a win-win-win.
But if Krueger is right, then how come Washington is the only state with a minimum wage higher than Obama's $9 mark? If a higher minimum wage doesn't hurt employment and helps businesses, then why haven't the 14 states where Democrats control the legislatures and governors' mansions raised their minimum wage to $10 or even $15?
Conservatives, of course, have a slightly different understanding of the issue. They believe there is no such thing as a free lunch and that a a higher minimum wage will cause businesses to reduce their labor costs by eliminating jobs.
As The Washington Examiner's Philip Klein noted Thursday, economists David Neumark and William Wascher not only performed an extensive literature review that confirmed this view, they even went back and obtained more detailed data from the counties Krueger had examined. They determined that he simply got his facts wrong. Unemployment did, in fact, go up when the minimum wage was raised.
Neumark and Wascher also found that the minimum wage is an ineffective weapon against inequality. Only 17 percent of minimum-wage earners come from poor families, whereas more than one-third come from families with incomes greater than three times the poverty level.
Even worse, those who tend to lose jobs because of the minimum wage are often the youngest and least-skilled workers who most need work experience to build future earning potential.
There is one other crucial consideration. The United States is a very large country with many different communities, each with its own values and lifestyles. It does not cost the same amount of money to live comfortably in Washington, D.C., as it does in, say, Oklahoma City. In fact, according to the Council for Community and Economic Research, it costs about 66 percent more to live in the nation's capital. Yet Oklahoma business owners will be expected to pay the same for unskilled labor as those in D.C. A federal minimum wage makes very little sense in principle, and it promises to do significantly more damage in states and regions with lower costs of living.
As Obama pointed out, 19 states already have minimum wages above the current federal minimum of $7.25. All states are free to raise their minimum wages as high as they like. And if the states that do so outperform the others, then the rest will follow suit. That is how our federal system works.