What is the most important challenge facing America today? Robert Schiller, the Yale University professor awarded the Nobel Prize for Economics, says it's economic inequality. Others parse that and say it's solving the record long-term unemployment problem for millions of American workers. And at least one economist is saying lowering the minimum wage - say to $4/hour - is the way to do that.
Michael R. Strain has a Ph.D. in economics and is a resident scholar at the American Enterprise Institute. Last October he wrote in the National Review that we should extend the emergency federal unemployment-insurance program because it’s much harder today for the long-term unemployed to find a job than it has been in the past when emergency federal benefits were allowed to expire.
More recently, in this commentary piece he wrote for Bloomberg News, Strain says extending the unemployment benefits is "helpful, but not nearly sufficient."
Numerous studies have shown - and even Staffing Talk readers have commented - that the longer you are out of work the harder it is to find work.
37% of the unemployed have been out of work for 27 weeks or more.
A recent CNNMoney post finds about 37% of the unemployed have been out of work for 27 weeks or more, and their job prospects look increasingly dim.
According to the post and calculations from the Council of Economic Advisers, a person who has been unemployed for five weeks or less, has a 31% chance of getting a job. Once they've been unemployed between 27 and 52 weeks, those odds drop to 12%. Finally, if a person has been officially out of work for a year or longer, the chances of finding a full-time job are just 9% (see graphic below).
"One goal should be to make it easier for companies to hire the long-term unemployed. And a step forward would be to let companies pay the long-term unemployed less by lowering the minimum wage for them."
"What can the federal government do to help these workers today?" asks Strain in his Bloomberg column. "One goal should be to make it easier for companies to hire the long-term unemployed. And a step forward would be to let companies pay the long-term unemployed less by lowering the minimum wage for them."
If hiring the long-term unemployed is seen as a risk for whatever reason (personal problems, skills erosion, productivity concerns, etc.) by some employers, Strain opines lowering the minimum wage to $4/hour significantly mitigates "employers' risk from hiring a long-term unemployed worker."
For those who might immediately come back with the argument that a lower minimum wage couldn't work if the current minimum wage of $7.25 isn't sufficient to put full-time working people above the poverty line, Strain says the policy would have to "be paired with an expanded earned-income credit, or with more straightforward wage subsidies."
"Strain says the policy would have to "be paired with an expanded earned-income credit, or with more straightforward wage subsidies."
Paul Krugman is Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton, Centenary Professor at the London School of Economics and also a Nobel Prize winner in Economic Sciences. He writes in The New York Times, "The belief that lower wages would raise overall employment rests on a fallacy of composition. In reality, reducing wages would at best do nothing for employment; more likely it would actually be contractionary."
Many Bloomberg News readers certainly weren't kind to Strain's minimum-wage-cuts-paired-with-wage-subsidies proposal. Here is a small sample:
"Why should the federal government provide a competitive advantage to companies that pay lower wages? If my company pays $10 an hour and your company pays $4 an hour plus $6 hour of government filling in the gap, the government is basically taking on your payroll to help you compete with me. Better that the government take the conservative position and ask companies to pay their own workers instead of forcing the taxpayer to do it."
"So the answer is to pay Bangladesh level wages, and then effectively subsidize the companies with vastly expanded government tax cuts?"
"You have to be freaking kidding me. So the answer is to pay Bangladesh level wages, and then effectively subsidize the companies with vastly expanded government tax cuts (earned-income tax credits). Why not just hand the companies baskets full of cash to pay their workers?"
"Seriously? Mr. Strain is a 'scholar?' This is perhaps the dumbest, most irrationally and sloppily reasoned opinion piece I've ever read in my life."
"Why is the policy idea to let employers hire $10/hour workers and let the government pay $6 of the cost? Enough with the corporate welfare. If anything, I would prefer the government hire the unemployed themselves at whatever wage would pay them enough to not need government benefit programs, and then put them to work doing something, anything really, that would benefit the country."
And on and on it goes. Let the ideas keep coming. I think we can all at least agree on the fact long-term unemployment is a serious problem in this country, and it threatens to undermine any overall sense of "economic recovery."
The odds of getting a job go down the longer a person is out of work...