In yesterday’s WSJ, consumer advocate Ralph Nader argues that today’s minimum wage of $7.25 per hour is too miserly and should be raised. Nader thinks President Obama is even being too miserly by proposing an increase in the minimum wage to only $9.00 per hour, and thinks a 47% increase to $10.67 would be even better. What about the economic effects of the 47% mandated wage hike? According to Nader, a huge increase in the minimum wage wouldn’t damage the economy, but it would actually lead to an economic miracle that would create jobs and prosperity as follows:
Critics argue that increasing the minimum wage will harm the economy. In fact, when low-wage workers receive a wage increase, they spend that money back into the economy to pay for the necessities of life. In 2011, a Chicago Federal Reserve study showed that for every dollar increase in the hourly pay of a minimum-wage worker, the result was $2,800 in new consumer spending from that worker’s household over the year. Studies from the Economic Policy Institute indicate that a $10.50 hourly minimum wage would increase economic activity by at least $30 billion over each of the first two years and add 140,000 jobs.
Wow, if only it was that easy. And if it really was that easy, wouldn’t a 60% or 70% or 80% increase in the minimum wage create an even bigger economic stimulus and add even more jobs? Of course not, and nobody explains Nader’s type of economic nitwitery better than Don Boudreaux:
If creating economic growth were as easy as Ralph Nader assumes it to be, then he should also support a “minimum clothing price.” Suppose government forced Wal-Mart, Target, and other retailers to raise the prices of all clothing items by 47 percent. On Mr. Nader’s reasoning, these firms would then have more money to spend. That spending would raise the demand for clothing sufficiently to make it profitable for firms to sell as much clothing as they like at those higher prices.
That Mr. Nader would likely – and rightly – oppose a “minimum clothing price” shows that he’s not thought seriously about his argument in support of a minimum wage.