Taking Ed Schultz to Task on the Minimum Wage

On his MSNBC show on February 13th, Ed Schultz came to the President's defense of his recent proposal to raise the minimum wage to $9 an hour. According to Schultz, while Republicans say that "it's gonna' cost jobs and it's gonna' hurt small business" this is really "just another example of Republicans denying the facts."

The truth has no political affiliation, and while economists may seem to disagree on everything, there actually is something of a consensus regarding the minimum wage. Harvard professor Gregory Mankiw has a list on his blog of fourteen issues where economists have unanimous agreement. The statement that "a minimum wage increases unemployment among young and unskilled workers" garnered 79% agreement - and I have my doubts that 79% of economists are Republicans. 

In fact, we can already see what hikes in the minimum wage do to youth unemployment by looking at states that set their minimum wage above the Federal minimum. The youth unemployment rate in states with their minimum wage above the Federal minimum wage nearly four-percentage points higher than those with the $7.25 minimum. I focus on youth unemployment because statistically it is not the single mother earning the minimum wage; it's primarily low-skilled teenagers or college age students. Only 3% of minimum wage workers are older than 25.

Schultz never cites any studies directly, but does mention that "several academic studies have found that increasing minimum wage had no significant effect on employment levels in this country," which 79% of economists have apparently never seen. One fact that Schultz uses to justify his claim that minimum wage hikes won't harm small businesses is that two-thirds of minimum wage earners are employed by large corporations.

Assuming that large corporations would shed no jobs thanks to a hike in a minimum wage, you also have to consider the effect that this would have on the competitiveness of the small businesses that employ the other one-third. In 2005, Wal-Mart actually called for hikes in the minimum wage. Their CEO Lee Scott claims that it was to prevent Wal-Mart customers from living paycheck to paycheck, but there's much more that this hike would do for Wal-Mart. Despite their reputation for being a low-wage employer, the average Wal-Mart employee made $3 more than the minimum wage in 2005. The minimum wage could be hiked without cutting into Wal-Mart's profits by a dime, but what about Wal-Mart's nearby competitors? The more small competitors of Wal-Mart either forced to raise prices or go out of business as a result of the minimum wage hike only aids Wal-Mart's competitive advantage.

Another fact that Schultz cites is that the 2009 minimum wage increase generated $5.5 billion in consumer spending nationwide. Consumer spending totaled approximately $10.1 trillion in 2009, so even assuming that the statistic is accurate, it amounted to something of a 0.00054% boost in consumer spending. On the other hand, the 2009 minimum wage hike resulted in the loss of an estimated 800,000 jobs, so it's questionable whether or not this is a desirable trade off.

I think my favorite talking point that Schultz tosses out is that there is no state where a minimum wage earner can afford a two-bedroom apartment working forty hours a week. MSNBC is apparently still wrapping their heads around the concept of roommates.

Author's credit: Matt is currently writing a book titled "The Conscience of a Young Conservative." A free chapter can be read at: http://pdfcast.org/pdf/the-health-care-imperative