Neoclassical economists and the minimum wage

Nothing quite makes neoclassical economists go apoplectic than reading or hearing the argument that an increase in the minimum wage doesn’t cause unemployment. Just ask David Card and Alan Krueger (here’s one example, from Gary Becker).

A new study by Arindrajit Dube, T. William Lester, and Michael Reich will no doubt provoke a similar reaction. Here’s the link to an interview with Dube.

Dube’s findings indicate that a higher minimum wage helps service retailers attract and retain employees, increasing their productivity. He said that a restaurateur, for example, is likely to reduce his employees when the wage goes up if only one restaurant raises their wage, but if most of them raise it, the added cost is passed on to the consumer who is likely to absorb it without decreasing their demand. . .

He added that work done by economists at the Federal Reserve showed minimum wage increase led to significant increases in purchases of durable goods.

“From a perspective of stimulating demand, minimum wages will tend to increase demand by increasing the purchasing power of those workers.”

And this is in a country in which the real federal minimum wage is more than 20 percent lower than it was in 1968. Imagine how crazy neoclassical economists would get if there were a minimum wage that actually lifted workers above the poverty level!

Maybe as crazy as it makes them when the suggestion is made to repeal the tax cut for the top 2 percent. . .