Monday, July 13, 2009

higher minimum wages in a deep recession

There were a lot of boneheaded policies that deepened and extended the Great Depression. Most notably, FDR imposed policies that increased the price/cost of labor. It doesn't take a PhD in Econ to figure out that making labor more expensive is not helpful in encouraging firms to hire more of that labor's services!

Obama is working to make business activity more painful through an assortment of policies. But a policy passed by his predecessor-- in tandem with the Democratic Congress-- has been giving the economy a kick in the shorts: the increase in the minimum wage last July from $5.15 to $5.85 in July 2007, to $6.55 in July 2008 and soon, to $7.25 in July 2009.

The minimum wage was mostly irrelevant in 2007-- a low amount in a vibrant economy. Two years later, it's been increased by about 40%-- to a significant amount in a sour economy.

The bad news: one more reason why the economy will struggle to recover over the coming months. The good news: Obama is less likely to be able to take (false) credit for a recovering economy.


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