An interesting New York Times article (free rego. required) on the fight to raise the minimum wage in the US, a battle being fought at the municipal level. The federal US government is opposed to any sort of raise. The Australian government has just enacted the ‘WorkChoices’ legislation, a misnomer if ever there was one, which will result in lower wages in the long run, and trumpeted the “higher wages = less jobs” canard in the run up to the vote.

This last position was long underpinned by the academic consensus that a rise in the minimum wage hurts employment by interfering with the flow of supply and demand. In simplest terms, most economists accepted that when government forces businesses to pay higher wages, businesses, in turn, hire fewer employees. It is a powerful argument against the minimum wage, since it suggests that private businesses as a group, along with teenagers and low-wage employees, will be penalized by a mandatory raise.

The tenor of this debate began to change in the mid-1990’s following some work done by two Princeton economists, David Card (now at the University of California at Berkeley) and Alan B. Krueger… But in 1995, and again in 2000, the two academics effectively shredded the conventional wisdom. Their data demonstrated that a modest increase in wages did not appear to cause any significant harm to employment; in some cases, a rise in the minimum wage even resulted in a slight increase in employment.

Sadly, the mentality parodied by Chris Rock when he said that minimum wage means “We’d pay you less if we could” still holds sway.