Krugman on the Minimum Wage

Via Don Boudreaux:

Bluecravat found something telling that I missed a few months ago, namely, Paul Krugman explaining back in August that one potential cause of the high unemployment rate in France is that country’s “high minimum wage.”  As Bluecravat exclaims after quoting from Krugman’s August post: “Excuse me?  What was that?  Minimum wage levels impact employment?”

Of course, it could be that France’s minimum wage is too high compared to the one that Krugman advocates for the U.S.  Krugman supports Pres. Obama’s call for a $10.10 hourly minimum wage.  So how does the employment-discouraging minimum wage in France compare to the allegedly prosperity-enhancing, non-employment-discouraging minimum wage that Krugman, Obama, et al., support for the U.S.?  According to Bluecravat, France’s current minimum wage, when adjusted for purchasing-power parity, is $9.30 per hour, a rate that is lower than the minimum-wage rate advocated by Krugman, Obama, et al.

The minimum wage is terrible anti-poverty policy.  The thing to remember is that A. The majority of minimum wage earners are not poor (or in the poorest 20%); and B.  The majority of the poor don't earn minimum wage.  In most cases, the poor are poor because they don't get enough hours or don't have a job at all, a situation that will only be made worse with a higher minimum wage.


  1. tmitsss: Public Sector Summer Jobs for Youth Reduce Violence, Query: then what does minimum wage do to youth violence?

  2. TruthisaPeskyThing:

    Studies have shown that school drop-outs rise when the minimum wage increases. The drop-outs do not occur in rural and suburban communities where college is a strong cultural value. Instead, the increase occurs in low-income areas, thus consigning the drop-outs to a life time of poverty since education is the most common vehicle out of poverty. Yes, to address the question from tmitsss, there is a correlation between youth violence and the minimum wage since increasing minimum wage decreases the number of jobs for youth. The main beneficiaries of higher minimum wages are white suburban families where the supply of (and demand for) teenage employment is quite inelastic.

  3. MikeS:

    I believe that a higher minimum wage also confers an advantage to teenagers who come from relatively well off families. As an example, my daughter got a job this past summer working in a doughnut shop. My wife and I helped her decide what to wear to the interview and my daughter was able to drive herself to the shop. This gave her an advantage over the teenagers who did not know how to dress appropriately and/or had to have someone drop them off and pick them up. It is quite possible that if the minimum wage were lower, the manager might be willing to take a chance on some of the less promising candidates who probably needed a job more than my daughter.

  4. Sam L.:

    Paullie "the Beard" Krugman will contradict himself from time to time. That's one thing he's pretty reliable at.

  5. TruthisaPeskyThing:

    Often lost in the minimum wage discussion is reality that there are better ways to address poverty. The economy is always going to have low paying jobs requiring low levels of skill -- jobs that are well suited to teenagers and others who are NOT responsible for supporting a family. And the current abundance of these types of workers ensures that low-level skill jobs will now pay low wages. (93% of minimum wage earners are not supporting a family.) So what do we do with those workers who need to support a family and do not have the skills for higher paying jobs? In the short run, we do the Nixon idea: Earned Income Credit. If you have low income and need to support a family, we help you with the earned income credit. (Of course, the earned income credit has been abused, but its abuse is less now than 15 years ago.) In the long run, it would be great to have a cultural shift back to personal responsibility. When I was a kid, there was a tremendous fear instilled in me that if I did not work hard in school and that if I did not diligently apply myself, then my family would be in the poor house. Today, the cultural mentality is that I am victim if I am not earning enough to support my family.

  6. Nehemiah:

    There is another beneficiary, some labor agreements scale union wages to the minimum wage.

  7. joe:

    One of my favorite Krugman arguments was when he advocated the adoption of economic policies similar to France - His reasoning - the european gnp growth rate was greater than the US at the time - failing to mention that France's GNP growth was less than the US.

  8. TruthisaPeskyThing:

    I have heard that claim for decades, but I have never seen an example of such a union contract. Do you have an example?

  9. irandom419:

    Googe is your friend(

    "[w]henever the federal legal minimum wage is increased, minimum wage [in
    the agreement] shall be increased so that each will be at least fifteen
    (15%) percent higher than such legal minimum wage"

    Page 13:

  10. TruthisaPeskyThing:

    Thanks. It was interesting to see how little of a delta exists between those contracts and the minimum wage. It doesn't seem like the union is being very effective if they are getting for its members only 20 or 25 cents above minimum wage.

  11. epobirs:

    It should be remembered that minimum wage was created as a tool of racism:
    The part specific to minimum wage starts on page 13 but I recommend the whole thing.

  12. Dan Pangburn:

    Any increase in wage, minimum or otherwise, that is not a reward for increased productivity (or other value) is de facto a decline in purchasing power for others.

  13. zlop:

    "that is not a reward for increased productivity"

    Corruption dominates. Without corruption, asset generation would be increased 6 times, per Catherine Austin Fitts.

  14. mvetsel:

    While I've long ago learned to accept the vast economic illiteracy of the press and academia, I've recently noticed that when it comes to the minimum wage that professional economists have adopted a tactic of retreating into a peculiar type of sophistry.

    Rather than challenge the LAW of Supply and Demand or debate the unintended consequences of price controls on labor or negative wage price elasticity, they switch to multiple variable econometric models and then lo and behold they just can't find that needle in the haystack.

    I'll bet that if the Democrat Party platform stated that airborne feather have no weight, you'd see professional economists doing econometric analyses of birds based on the "natural experiment" that occurs when a bird loses a feather and then dismiss Law of Gravity-based arguments with some pompous phrase about how the economic literature shows that it's very difficult to find evidence that airborne feathers actually have weight.

    Multiple regression models are inherently vulnerable to manipulation, especially political manipulation and therefore that's where left-leaning economists like to hide. Don't let them do it. Ask them if they would need a multiple-regression model and a natural experiment to determine if a $40/hr minimum wage would benefit low wage workers.