Greenspan criticizes Clinton’s wage proposal

Though less noted, it was big news when Federal Reserve Chairman Alan Greenspan criticized another of President Clinton’s favorite ideas: raising the minimum wage, according to a recent article in the Washington Times written by Thomas Dilworth.

Mr. Greenspan – the nation’s “chief economist” – did not merely mention concerns about raising the entry-level wage. He elaborated. He spoke directly to elected leaders in a congressional hearing the day after the state of the union in terms that everyone can understand.

Said he: “We have to be very careful about thinking that we can somehow raise standards of living by mandating an increase in minimum wage”. “The last time President Clinton approved a mandate wage hike (1996), he succeeded in raising family incomes for the average minimum worker by precisely 1.02 percent – or about $7 per week,” wrote Dilworth.

“The average family income of the workers Clinton ‘helped’ was $35,674. The fact is the vast majority of minimum wage workers live in homes with other wage earners – parents, siblings, spouses, etc. Only 16 percent of those targeted by the 1996 wage hike were actually single-earner heads of households supporting children. And these individuals already had access to federal tax credits and other assistance that is better designed to raise their standard of living”.

Said Greenspan: “All the evidence that I’ve seen suggests that the people who are most needy of getting on the lower rungs of the ladder of our income scales, develop skills, getting the training, are unable to earn the minimum wage. As a consequence, they cannot get started”.

You don’t need Mr. Greenspan’s education or experience to understand that wages are inextricably linked with skills. If a job applicant has low skills, the best he or she can hope for is low pay, wrote Mr. Dilworth. “It’s easy to find some of the lowest-skilled workers in the country. They’re on welfare. The federal government says 38 percent of welfare recipients are functionally illiterate. They have trouble making change, or filling out a job application. If you owned a company that required cooks to read recipes, clerks to make change, drivers to follow directions, and stock boys to track inventory, would you even consider hiring someone who can’t read? Most employers can’t afford to. And as mandated wages rise, so do hourly training costs.

“Confirming research from Boston University suggests employers respond to higher mandated wages by seeking higher-skilled young people (read: less training), to the detriment of low-skilled adults (the ones who might need the money to support the family). And research from the University of Wisconsin found that higher minimum wages are linked to longer spells on welfare for many (potential) workers.

Said Mr. Greenspan: “The ability to get training, to move up the ladder has got to be unimpeded”. “A study by the US Department of Labor identified 11 skills essential for career growth. Those include communication, getting along with others and following directions – qualities employers look for and that employees learn…in an entry level job.

“When given the chance to move up from a minimum wage job, nearly everyone does. US Census data show the average earnings of minimum wage workers increase by 30 percent within a year of employment. Just 2.8 percent of working adults over 30 are paid minimum wage.

“Of course, upward mobility occurs after one gets hired. For low-skilled people who simply need a first chance, the President’s call for wage hike raises the bar. After the 1996 wage hike, economists found that 215,000 teen jobs were lost 0 even in the midst of a booming economy. The adult job loss numbers were likely even higher. While a ‘rising tide’ lifted the boats all over the country, a rising minimum wage drowned some or our neediest workers.

Said Greenspan: “If there’s any single thing that we could do which would help over and above a number of things that have been discussed today, I would say be careful about moving the minimum wage up inordinately”.

“Why? Because raising the prices as an offset is out of the question in today’s economy. As one of Mr. Greenspan’s colleagues at the Federal Reserve Board recently said ‘Everything is so competitive…business people really appear to believe that they can’t raise prices any more.’ Facing mandated wage hikes, employers must find ways to use fewer or better employees. They literally can’t afford to pay people whose skills don’t even equate with the current minimum wage.

“From his perch at the Federal Reserve, Mr. Greenspan has easy access to all the evidence on economic issues. This, his comments are both credible and influential. ‘My major concern,’ he said, ‘would be, for example, that we be careful not to raise the…minimum wage’.

There’s no question about the facts. The question is whether proponents of increasing the minimum wage can to listen.