A note on "In Defense of Minimum Wage." (response to Robert Prasch, Journal of Economic Issues, vol. 30, p. 391, 1996) (includes reply)

Author:Fischer, Charles C.

Robert E. Prasch, in his article "In Defense of the Minimum Wage" [1996], criticizes the "conventional wisdom" on the effects of a minimum wage. His arguments, which center on effective demand and economic growth, "transformational" growth, and economic power in labor markets, are both insightful and provocative. Prasch raises important beneficial effects of minimum wage legislation ignored by "orthodoxy" and public policymakers. However, Prasch's arguments are diluted by intermingling separate issues of the minimum wage debate, miss an important aspect of the power issue he raises, and do not squarely address the minimum wage debate.

Separate Issues

Prasch, throughout his article, argues for: minimum wage legislation [e.g., 1996, 391, 395], increasing the minimum wage [e.g., 1996, 392, 393, 395, 396], and setting a "high minimum wage" [e.g., 1996, 391, 395]. These three issues are intermingled throughout his "In Defense of the Minimum Wage." This, unfortunately, confuses and dilutes Prasch's argument. Enacting a minimum wage, increasing the minimum wage, and a "high" minimum each raise their own set of effects, and an argument for one is not necessarily a valid argument for the other. Prasch does not address the former and fails to make a clear distinction regarding the latter. One can be in favor of a minimum wage and, without being inconsistent, oppose increasing the minimum, or one can favor increasing the minimum wage and, without being inconsistent, oppose a "high" minimum wage. It depends upon the context (e.g., market, institutional forces) and the goal(s) to be achieved (e.g., wage equity, employment growth). For example, in the context of producer buying power, when the desired goals are to both eliminate producer exploitation of low-skilled workers and increase their employment, the optimum minimum wage may not necessarily be a "high" minimum. This is particularly problematic for Prasch's defense, since he does not define the concept of a "high" wage.

The remainder of this note focuses on the issue of increasing the minimum wage, since it seems to be Prasch's main concern, as suggested by the frequency of references to it and the emphasis he gives it in his closing comments [1996, 395-396].

Power in Labor Markets

Prasch's discussion of power in labor markets misses an important opportunity to strike at the Achilles heel of the orthodox position - the problem of producer power [Woodbury 1987; Fichtenbaum et al. 1994]. Here...

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