economists such as former Labor Secretary Ray Marshall. According to Marshall, high interest rates drove up the real cost of capital in the 1970s and 1980s, creating an incentive to compete against overseas rivals on the basis of pay just as baby boomers and women flooded the labor market. This drove down the relative price of labor, the effect of which was heightened by a dramatic drop in the inflation-adjusted minimum wage, which remains at a historically low level (Bernstein, Del Valle & McNamee, 1993, p. 92).
Marshall, in Thinking for a Living, a book he co-authored, argues that competing on wages is not smart. The key to winning in world markets while raising living standards domestically, according to Marshall, is to rely on higher-skilled, more productive workers--and indexing the minimum wage will help to spur this transition. While this may hurt young workers, who are the most vulnerable minimum-wage employees, Marshall states that young people should not be working in these job and should be in school or in apprenticeship programs where they will learn the skills needed for better jobs.
Minimum-wage critics have had trouble countering this argument. Berman agrees that higher labor costs force companies to improve efficiency. According to Thomas A. Gray, the senior economist at the National Federation of Independent Business, which represents small employers, this higher efficiency will produce long-term job gains. Both, however, still oppose a higher minimum wage, based on its assumed short-term drawbacks.
Princeton University economist David Card recently proposed a controlled minimum-wage experiment. While previous studies have identified low job growth primarily by making statistical correlations between minimum-wage hikes and national employment levels, Card's approach provides no comparison sample to show what job growth would be if the minimum wage was not raised (Bernstein, Del Valle & McNamee, 1993,...