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Tuesday, December 26, 2006

Rethinking The Minimum Wage

Greg Mankiw has a great way to look at minimum wage hikes.  Essentially, as he points out, a hike in the minimum wage is a subsidy for low-wage workers funded by a tax on the employers who hire low wage workers.

Sound sort of self-defeating?  It is, but then helping low-wage workers isn’t really what the minimum wage is about.  There are actually just a few Americans who are paid the minimum wage, and of those few most of them are students and retirees.  So why all the hubub about minimum wage?  It’s because union contracts are based on the minimum wage, and unions are nothing if not politically powerful.

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