Wednesday, June 21, 2006

Forget the Economy, It’s All About the Politics Stupid!

There’s a big political hullabaloo brewing this election year over a minimum wage hike. What a surprise. This thing only seems to pop up during election years.

The economics of a minimum wage hike are terrible.

Think of fast-food restaurants and small eating establishments that hire young workers of all colors and races, especially during the summer. These students and others will be priced out of the labor market because of the higher minimum wage.

Did you know that only about 2 ½ percent of the total workforce (slightly less than 2 million people) qualify for the minimum wage according to the Department of Labor Statistics?

And did you also know that roughly four-fifths of all the minimum wage workers are un-poor? Two-thirds of the minimum wage workers actually come from families where at least one other family member has a job. (These stats courtesy of Harvard economics professor Greg Mankiw’s website.)

Think students in high school or college.

But, unfortunately, the politics may prove too compelling this election year. So here’s my thought:

Tie a minimum wage hike to a tax cut for large and small businesses. Or even a big estate tax cut.

Then, the costs of a minimum wage hike would be offset by lower tax costs. We would get another tax cut on capital that would obviously help spur the U.S. economy.

I guess my hope here is to turn a negative into a positive.