Want to help the long-term unemployed? Try a two-tiered minimum wage
The Washington Post - 05/05/2014
Look at the jobs numbers since we cut long-term unemployment benefits in January. Do you see a big increase in employment? No, neither do I, even when I squint.
Now, cutting off benefits was supposed to encourage all those lazy, unemployed workers to go out and get jobs. Instead, more and more of the long-term unemployed have become discouraged and have left the labor force altogether. How, exactly, will they find jobs when there are three times as many job seekers as job vacancies? I don’t know.
Jobs today are demand-constrained, not supply-constrained. Businesses aren’t failing to hire because they can’t find willing workers; they’re failing to hire because they can’t find enough customers. Slashing unemployment benefits —which reduces incomes, and, hence, consumer spending — has only caused more misery for many, with little to no apparent gain.
This is still our biggest economic crisis, and still our biggest policy failing. Which brings us to President Obama’s proposal to raise the minimum wage from $7.25 to $10.10 an hour. Although it was increased a few years ago, the national minimum wage is still low by historical standards, having consistently lagged both average wages and inflation. The question, though, isn’t how high or low the minimum wage is relative to the past. The question is whether it would be good policy now. And the answer, perhaps surprisingly, is yes, but only if it excludes the long-term unemployed — and only if we make up for that by subsidizing their wages with an expanded Earned Income Tax Credit (EITC).