Rand Paul Gets the Math Wrong on the Minimum Wage
Doctor Senator Rand Paul may be an able ophthalmologist, but he’s flunking economics.
On January 30, when CNN’s Wolf Blitzer asked Paul about the minimum wage Paul insisted that “virtually all the studies show that if you increase the minimum wage, you get higher unemployment.” But he’s wrong—objectively wrong.
Since Blitzer didn’t correct him, someone’s got to break the news.
On January 27, the Economic Policy Institute (EPI) sent a letter signed by 600 economists to the president and Congress urging them to pass the Harkin-Miller minimum wage bill. Among the 600 were seven Nobel laureates and eight former presidents of the American Economic Association. They stated that past hikes have had “little or no negative effect on the employment of minimum-wage workers” and could modestly add jobs “as low-wage workers spend their additional earnings, raising demand and job growth…”
Lest the 600 economists do not convince Paul, it might help for him to know that the Federal Reserve Bank of Chicago—not known for radical thinking—recently said that raising the federal minimum to $9 could increase the United States GDP by up to 0.3 percentage points in the near future.
In fact, EPI president, Lawrence Mishel says that, “Across the phase-in period, GDP would grow by about $22 billion, resulting in the creation of roughly 85,000 net new jobs” and the hike would directly affect 17 million workers and another 11 million indirectly.
Another EPI economist, David Cooper, writes, “Economists generally agree that low-wage workers are more likely than any other income group to spend any additional earnings they receive largely because they must in order to meet their basic needs,” while higher-income individuals and corporations “are more likely to save at least a portion of any additional income.”
So now, when consumers are spending less, “raising the minimum wage can provide a modest boost to overall economic activity,” Cooper says. Indeed, it could help the country’s weak economic recovery, which could use some good employment news (when the anemic job gains of December were announced on Monday February 3, the market to plummeted 2.3 points).
Mishel quotes a recent study by the Center for Economic and Policy Research that shows that over the past few decades, minimum wage hikes have not caused employers to lay off workers because other factors kick in that benefit bosses—such as retaining their staff longer, which means lower turnover costs for training and learning time. He adds that while businesses may pass on some of the cost of increased wages to their customers, they do this only slightly—since they must stay competitive.
Debunking a favorite right-wing myth that mainly teens work at the minimum, Mishel notes that the people who would benefit most from a minimum wage increase are actually adults (87.5 percent), of whom more than half are women who work over twenty hours a week to make ends meet. Moreover, those benefiting from higher wages contribute half of their family’s income.
And speaking of teens, in the early 1990s, when New Jersey introduced a minimum wage bill, economists David Card and Alan Krueger surveyed fast-food restaurants in that state, along with those in Pennsylvania—which did not—and found that when comparing the two, there was “no indication” that the rise had reduced the number of those jobs in New Jersey.
Rand Paul, it’s time to take a refresher course.