You Are Here: Home » Articles » Financial News » That’s The Way To Do It: Kentucky Lowers The Minimum Wage
That’s The Way To Do It: Kentucky Lowers The Minimum Wage

Post Rating:

Tell us what you think, in the comments, after you read what Tim Worstall posted on Forbes.com!

It’s rare enough that we find someone proposing good economic policy. It’s even rarer when someone has the political courage to reverse a previous instance of bad economic policy. At which point we need to be congratulating Kentucky on one event there: the income Governor has just decided to lower the minimum wage. Given that a high minimum wage is indeed an economic error and thus bad public policy the reversal is good news. So, congratulations and Hurrah! to the good people of Kentucky. And yes, it really is true that the minimum wage should have come down again: wages in general in Kentucky are lower than much of the rest of the country and thus if we’re going to have a minimum wage at all then that should also be lower.

It’s entirely true that not many people are looking at this they way that I am. But then that’s because near no journalists, a generally left leaning craft as it is, seem to quite get the points being made about the minimum wage in the first place. The basic point from theory is that higher prices lead to fewer purchases of whatever good has just risen in price. We have no reason whatsoever to think that labour is not such a good. Therefore a rise in wages mandated will lead, we think, to a reduction in labour being employed: unemployment in short.

More detailed empirical studies tell us that yes, there are effects on teen and other untrained workers from a rise in the minimum wage. And yet more research tells us that modest rises have, at worst, only modest effects on the general level of unemployment across all wage groups. It is thus possible to argue, as say Jared Bernstein does, that while the job losses might be small, and regrettable, the positive effects for those who keep their jobs outweigh that. I don’t agree with that view but it’s a reasonable enough one to hold. However, do note the weight placed on the definition of the word “modest” there.

As best we can work out less than 50% of median wage is a modest minimum wage, above that an immodest one. Which is why Bernstein, the EPI, Dube, Krueger, Larry Mishel, large numbers of economists who do support a rise in the minimum wage. support a rise to only $12. Because that’s roughly 50% of America’s full year, full time, minimum wage. I’m a bit cynical of that target myself to be honest: I think the literature tells us that 50% of the regular median wage, not just the full time one (and so, the median of part time and part year as well as full time full year employment) is the number to be looking at. That’s around $17 an hour these days, meaning that the minimum wage should be, assuming we’re going to make the mistake of having one at all, no higher than $8.50.

But Kentucky’s cut back to $7.25:

In another executive order this week, Bevin reversed former Gov. Beshear’s move to raise the state’s minimum wage for government workers and contractors to $10.10 an hour, bringing it back down to $7.25 an hour. About 800 state workers who have already gotten raises will be able to keep them, but new hires will now have to start at the lower pay rate. In the order, Bevin hinted that he would prefer the state have no minimum wage at all: “Wage rates ideally would be established by the demands of the labor market instead of being set by the government,” he said.

I agree entirely with that statement, indeed would go further. For wages are entirely set by the market: those who don’t produce enough to be worth $10.10. or $7.15, end up getting nothing as they have no job at all.

Leave a Comment

You must be logged in to post a comment.

Scroll to top