Escaping the Wage Trap

Wages have stagnated, especially for those at the bottom of the earnings scale, boosting support for populists. So, says Bill Emmott, author of The Fate of the West, now is the time to consider a dramatic increase to the minimum wage.

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Transcript

Governments in the West are stuck. After a long and painful recession, economic growth remains slow, making voters grumpy and leading many to support populists of various hues.

But governments’ tools to address the problem are broken. Fiscal policy has been made politically toxic by debt. Monetary policy has run out of road, and, anyway, inflation is making a comeback.

So I have a proposal that will alarm free-marketeers and surprise others: Governments should intervene directly in the labor market. I want them to raise minimum wages sharply.

Without that sort of intervention, we will remain stuck. Economic inequality will grow and, with it, perceptions of political powerlessness and loss of hope for the future. Pressure for tempting but damaging solutions, for closing borders and minds through protectionism and national chauvinism, will become irresistible.

I fully expect people to call me mad. Don’t I know that higher minimum wages risk causing unemployment? Haven’t I heard of the “rise of the robots” and all the ways automation is believed to be destroying jobs? Don’t I believe in market solutions?

Yes, of course I do and I have. But, as Keynes famously said, when the facts change, I change my mind.

The main reason governments are leery of intervening in labor markets is bad memories of failed wage and price controls during thehigh-inflation 1970s. But a second, more current, reason is that businesses everywhere lobby them to keep out, arguing that competitiveness depends on cheap labor.

But it’s time to ignore the lobbies and take courage. Sometimes, raising the minimum wage really would risk killing employment. But today that looks unlikely, at least in countries where unemployment rates are now low. And we need more investment in new technology to raise productivity, not less. Raising minimum wages would help stimulate that investment, while boosting consumer demand.

Japan famously had an “income-doubling” plan in the 1960s. With that successful example in mind, why not introduce a “minimum wage doubling” plan, to be carried out over a period of years, thus giving business the chance to adjust?

Any interest, President Trump?