Economics 101 - Minimum Wage: Is it Wishful Thinking?

My background of economics went only as far as Economics 101 in college, but the constant rhetoric to increase the minimum wage from $5.15 to $7.25 an hour, a 40% increase, and the idea that was once economists agreed, even liberal ones, that it was bad for the economy in terms of unemployment; but according to Steve Chapman’s article at Townhall:

The Economic Policy Institute, a Washington research group, recently unveiled a newspaper ad trumpeting a statement signed by some 675 economists who endorse raising the minimum wage from $5.15 an hour to $7.25. Among the signers are Nobel Laureates Kenneth Arrow, Clive Granger, Lawrence Klein, Robert Solow and Joseph Stiflitz. A generation ago, it was universally agreed, even among liberal economists, that raising the minimum wage was a mistake because it would produce higher unemployment. Force companies to pay the lowest-skilled workers more than they are worth, and companies will get rid of them. … That insight violated, but didn’t curb, the perennial liberal desire to pursue social improvement at other people’s expense. In the past, Democrats boosted the minimum wage in stubborn disregard of the wisdom of academia. … notable research merely showed that a higher minimum wage failed to raise unemployment in the fast food industry, not that it failed to destroy jobs in general. ….Despite the minority view … Hoover Institution economist David Henderson says the consensus in the trade is that each 10 percent add-on would destroy 1 to 2 percent of young people’s jobs. So a $7.25 minimum wage could mean the loss of up to 1.6 million positions. … chances are good that economists have been right all along in expecting such consequences. It may be deeply unwelcome to hear that the government can’t fix the price of anything without self-defeating side effects. But even dismal truths are true.

And Senator Kennedy, as well as others, who have used the minimum wage card for so many years, may very well be proven it is all political hype at the expense of working Americans.

Further Reading: Sense and Nonsense, Cato Review of Business & Government.