Many Congressional Republicans and business executives agreed, predicting that the bill’s new payroll taxes would short-circuit the economy’s recovery from the Great Depression. With all this criticism, the bill’s fate seemed uncertain. On March 21, the editorial page of The New York Times approvingly quoted a news report saying that the bill’s prospects were “diminishing daily.”
The worries about Social Security may sound silly now, given that it did pass that summer and went on to become one of the most popular government programs in American history. But on the narrow charge that they were making — that Social Security would destroy jobs — the critics at The New York Times and on Capitol Hill were, in fact, correct.
Besides taking money out of the pockets of workers that otherwise might have been spent, the new payroll taxes raised the cost of employing workers, and when the cost of something goes up, demand for it usually goes down. The Social Security Act of 1935, as the historian Edward Berkowitz has noted, laid the groundwork for the “Roosevelt recession” of 1937 and 1938.
Social Security is hardly the only job-killing program enacted in the last century. If the country cared only about creating jobs — rather than, say, lifting living standards — it would also be wise to get rid of Medicare and the payroll taxes that come with it. Workplace safety rules, with their costly requirements that workers not be injured on the job, should go, too.
Which brings us to today’s equivalent: the minimum wage, on the ballot this year in Arizona, Colorado, Missouri, Montana, Ohio and Nevada. Voters will decide whether to raise their state minimum wages by as much as $1.70 and to index the wages to inflation thereafter, making the federal minimum of $5.15 an hour largely moot.
Ten years have passed since Congress last voted to raise the minimum wage, and it has drifted down to a 50-year low in inflation-adjusted terms, about a third lower than it was at its peak in the late 1960’s. In 1968, an hour’s worth of minimum wage work bought almost five gallons of gas. Today, it buys less than three gallons.
Every time the issue has come up in Congress or in the states, opponents have raised the same specter of mass unemployment that was part of the fight over Social Security. In 1996, Senator Hank Brown, a Colorado Republican, said that a higher minimum wage would cast teenagers out of work and create “a crime problem and a juvenile problem of epic proportions.”
This year, one television ad paid for by the Denver Metro Chamber of Commerce and other business groups portrays a man dressed as Moses coming to tell God about the minimum-wage initiative. With storm clouds rolling in, an off-screen God pronounces the initiative “a catastrophe.” If that’s not quite graphic enough for you, another ad shows a roll of toilet paper morphing into a cheese grater, in an attempt to describe how a minimum-wage increase will feel to Coloradoans.
Yet such arguments seem to be falling flat with voters. A recent poll in Colorado shows 69 percent supporting the measure there, and only 26 percent opposed. In the other five states, the initiatives have similarly big leads, if the polls are to be believed. Already, 21 states have minimum wages higher than $5.15.
I think there are two main reasons for the enormous popularity of the proposals. By now, many people probably understand that the dire predictions about higher minimum wages don’t come true. In the 10 years since Congress raised the minimum wage, crime didn’t become an epic problem, as Mr. Brown forecast. Instead, it has fallen sharply.
In fact, modest rises in the minimum wage don’t even appear to kill many jobs. The recent state increases have created a series of natural experiments for researchers to study, and they have generally found that modest changes have only minor effects on employment levels. Some have found no net effect. Higher wages may end up lifting employee morale and reducing turnover, making business more productive and mitigating some of the higher labor costs.
As Alan S. Blinder, a former vice chairman of the Federal Reserve, says, “What’s changed in the last 10 to 15 years is an accumulation of pretty convincing evidence that the employment problem is not very significant.”
Mr. Blinder is also an author of a popular college textbook, which once instructed students that, “The primary consequence of the minimum wage law is not an increase in the incomes of the least skilled workers but a restriction of their employment opportunities.” In the current edition, that sentence is gone.
The second big cause of the proposals’ popularity stems in all likelihood from the rise of income inequality. The American economy has done so well at creating jobs in recent decades that almost anybody who wants work can find it. The problem is that too many jobs still don’t pay a decent living. So even if a minimum wage increase does eliminate a small number of jobs, that may be an acceptable price for improving the lot of millions of low-wage workers.
The current batch of ballot initiatives isn’t perfect. Three of the six would enshrine the new wage in the state constitution, which seems a strange place to discuss inflation indexing (a point that opponents are emphasizing, perhaps realizing that the old scare tactics aren’t enough). A higher minimum wage also isn’t the most effective way to fight poverty, because some minimum wage jobs are held by middle-class teenagers.
But Congress and state legislatures have yet to come up with better solutions, and voters may not be willing to wait for perfection.