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Minimum Consistency, Again

Here’s a letter to the Washington Times:

Pres. Obama cancelled public tours of the White House in response to sequestration cuts (“White House visitors, get lost,” March 8).  Before doing so, I wonder if the president consulted with Alan Krueger, chairman of his Council of Economic Advisors.

Mr. Krueger argues (along with some other economists) that a modest hike in the minimum wage causes no increase in unemployment, in part because firms respond to the higher wage by using greater resourcefulness in working their low-wage employees.  More generally, as Mr. Krueger said last month in a PBS interview, “employers might also discover some ways of saving waste that they had before when the minimum wage increases.”*  Mr. Krueger’s presumption is that firms operate with enough ‘slack’ to permit them to absorb minor hikes in their wage bill without changing their procedures.

But if private firms can easily and without any negative effects adjust to a small, government-imposed tightening of their budgets, why cannot government agencies do the same?

Perhaps, after all, political cynics are correct that heads of government agencies are both less resourceful and less responsive to their customers’ desires than are private business people.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

* “The Man and the Thinking Behind the Minimum Wage Hike,” PBS News Hour, February 14, 2013.