Economists and the restaurant industry offer input on the minimum wage debate

With support from the Obama administration, Congress is contemplating an increase in the minimum wage, in small annual steps to $10.10 per hour by 2016. After that, the minimum wage would rise automatically with inflation.

A group of several hundred economists signed a letter of support sponsored by the Economic Policy Institute. The letter said the proposal would help 17 million workers directly, and perhaps another 11 million workers by boosting wage expectations at the low end of the labor market. The letter said the weight of recent research shows "that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market."

A competing group of several hundred economists signed a letter of opposition. The letter says the consequence of the minimum wage proposal is "that business owners saddled with a higher cost of labor will need to cut costs, or pass the increase to their consumers in order to make ends meet. Many of the businesses that pay their workers minimum wage operate on extremely tight profit margins, with any increase in the cost of labor threatening this delicate balance."

In my own profession, several leading agricultural and applied economists signed each letter.

The New York Times this week pointed out that the letter of opposition was not really written by Vernon Smith, the lead signatory, who is a Nobel-winning economist. The letter was circulated by a firm hired by the National Restaurant Association (NRA), which has much to lose from the new minimum wage proposal. Smith is quoted saying he hadn't known who originated the statement, but he didn't mind that it turned out to be the restaurant industry, because the content of the letter is what mattered.

I asked a couple of my favorite agricultural and applied economists who had signed each letter if they wanted to respond to the controversy. One who signed the letter of support just confirmed that he supported the proposed minimum wage increase, but preferred not to say more.

Dan Sumner, a leading food policy thinker and economist at UC Davis, who signed the letter of opposition, gave this response. I had asked him if he felt "ill-used" by the restaurant industry. His email tackles the concern that the NRA support was non-transparent, discusses anti-poverty policies he judges superior to the minimum wage, and casts the minimum wage unfavorably in the context of other governmental efforts to set prices.

Parke:

I just assumed the min wage letter was developed and circulated by an interest group. Interest groups are the ones with enough interest to organize such an effort.

But, like Lucas and Smith, the proposition and argument itself is what matters to me. I have no connection with fast food places.

I put the minimum wage in the category with farm subsidies as a silly policy ill-targeted and worse than worthless for three reasons.

a. It uses policy resources, effort and attention, that would be better spent doing effective things to help the poor, such as earned income credits or targeted education programs or quality day-care or ...

b. It sends the signal that government price fixing is good policy more broadly. I know from my own specialty that government-set prices are generally bad policy. Thinking we can fix labor market problems or ill-trained workers or any other problem by having members of Congress set some favored price based on what their favorite lobby says it should be just encourages shoddy thinking.

(You will recall that is my problem with the press and the Congress continuing to act as though food stamps had anything to do with food. The reason I like the SNAP program is that is is unrelated to nutrition and the nanny notion that the feds should tell people how to spend their money, even charity.)

c. Minimum wage is so ill targeted as a poverty program and really does make it harder for some poor gal with very little to offer to get that first job. If I have to pay $10 anyway I can turn her away and hire only her sharper cousin, who already had a leg up.

Anyway, that's my off the cuff thinking.

By the way, the interest groups I have least time for are the ideological lobby groups and NGOs that seem to be very loose with the facts and analysis. These range from Heritage to HSUS to the Union of Concerned Scientists. My sense is these folks are just as likely to have an underlying bias to everything they do, and they pretend they act in the "public interest" relative to firms and groups of firms who have clear financial motivations.

Dan

Highlights from Vilsack Senate confirmation hearing

This morning, I was among a presumably small number of people huddled around our computer screens or speakers, observing the Senate Agriculture Committee's hearing of Obama's Agriculture Secretary Nominee, former Iowa governor Tom Vilsack. Committee Chair Senator Harkin released this statement about the nomination. The archived webcast of the hearing is available here.

Although I only watched half of the hearing, the Senators covered many of the controversial topics in food and agriculture policy, ranging from organic standards to domestic and global hunger, trade liberalization, crop insurance, forestry and of course commodity payments. If you have never watched a confirmation hearing, as I hadn't, it feels remarkably like being a fly on the wall of a job interview. Vilsack drew on examples from his past positions to illustrate his commitments to farmers of all sorts, rural development issues, action against hunger and experiences addressing civil rights concerns in government.

As expected, Vilsack sailed through the hearing, which included substantial mutual back-scratching and compliments to the Committee on its work passing the 2008 farm bill, despite the many obstacles to doing so.

Some highlights included Vilsack's encouragement of locally grown fruits and vegetables and pronouncement that they should be grown not just in rural areas, but everywhere. He announced that he met with Health and Human Services nominee Tom Daschle last week in order to demonstrate the importance of working together for nutrition.“It’s going to be important for us to promote fresh fruits and vegetables as part of our children’s diets. . .that means supporting those who supply those products” and making it easier for consumers to buy locally grown products, Vilsack said. And there was Senator Pat Roberts' contrasting descriptions of local, organic farmers who sell apples "with a little extra protein" at farmers markets in "the county seat," with "real" farmers involved in production agriculture, as he proclaimed that the latter group are the ones actually supplying America's food.

It is expected that Vilsack will be confirmed easily by the full Senate as early as next Tuesday as soon as Obama is sworn in as President and officially nominates his Cabinet. You may wonder, as my roommate did, how the Senate can hold hearings for administration appointees before President-elect Obama has officially nominated them. From my small amount of research, it seems that this entire process is going more quickly than in previous transitions, with the hope that the new Administration will be in a better position to tackle the myriad problems with which they will be confronted on Day 1 if these appointees can be confirmed immediately. Some Republicans in Congress have expressed frustration at the unprecedented speed with which the administration-elect is proceeding through the nomination and vetting process; I imagine that if Congress were controlled by the opposite party, even the bipartisan spirit supposedly sweeping Washington would not be enough to enable things to proceed this quickly.