Liberal Economics & the Minimum Wage

As Barry Clark indicates in Chapter Nine of Political Economy: A Comparative Approach, the profession of economics, whether classical, liberal, radical, conservative, or modern liberal has long been concerned with the issue of poverty and income inequality. Modern liberal economists have seen the deterioration in the after-inflation value of the minimum wage as having made a substantial contribution to the steep increase in inequality which has taken place in the United States since 1980 (Spriggs & Schmitt, 1996).

The analysis which follows will discuss the minimum wage. First, by briefly summarizing some of the arguments of the modern conservative economists about its validity and applicability, and then by discussing in more detail, the major arguments of liberal economists in support of the minimum wage. Hopefully, such an analysis will provide insight into the contemporary controversy surrounding this issue.

The Modern Conservative Argument Against the Minimum Wage

Many modern conservative economists argue that increasing the minimum wage is at least ineffective and poorly advised. If the object of the minimum wage is to establish a lower limit of pay which will boost or stabilize the incomes of the working poor, then they believe more damage than good will be effected. Their standard interpretation of economic theory treats the labor market like any other: the demand curve for labor slopes down as

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1996, 165). In terms of economic theory, increasing the minimum wage can be defended by liberal economists in several ways. A purely mechanical relationship between economic growth and the accumulation of labor and capital was demonstrated by Robert Solow in 1956. Solow showed that the economy of a country grows by accumulating labor and capital. Yet the more labor or capital that already exists, the more that is needed for a further jump in output (Wall, Economic Theory, 1996). By increasing wage levels, regardless of the reasoning for such an act, a country's economy is lifted to a different level. But these changes are no guarantee of higher wages. The Secretary of Labor during the Eisenhower Administration coined the phrase "wage contour" in 1957 to describe groups of jobs with "common wage-making characteristics." While low wage workers along this contour do not necessarily make the same wage, their pay tends to move together over time, generally in response to the human resources policies of firms and to local labor market conditions. Spriggs and Klein (1994) posited that millions of jobs in the U.S. economy are linked to this "minimum-wage contour." Most of these jobs pay more than the minimum wage, but their pay rate
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