State of the Union: President Gets Minimum Wage and Gender Pay Gap Wrong

by Aloysius Hogan on January 29, 2014

in Economy, Employment, Labor, Regulation

President Obama surprised few in his State of the Union address, which was dominated by egalitarian and populist themes. The president is entitled to his ideology, but not to his own facts. On both the minimum wage and gender pay gap, the president’s position runs counter to the economic reality.

President Obama voiced strong support for legislation sponsored by Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., to raise the federal minimum wage from $7.25 to $10.10 per hour. He also encouraged cities and states to raise their minimum wages, citing the five states to have done so in the past year, while calling on businesses themselves to increase employee pay. Every employee would certainly like to be paid more. Unfortunately, increasing the minimum wage will decidedly not promote economic growth nor help our present employment woes.

Writing in the The Wall Street Journal nearly two decades ago, Nobel laureate economist James Buchanan called out such populist rhetoric as economically baseless: “[N]o self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.”

Nonetheless, President Obama proclaimed, “In the coming weeks, I will issue an Executive Order requiring federal contractors to pay their federally funded employees a fair wage of at least $10.10 an hour — because if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.”

What the president fails to note is that his proposed minimum wage of $10.10 per hour would still leave a full-time breadwinner’s family below the poverty line.

His claims about the gender pay gap were just as untethered from reality.

“Today, women make up about half our workforce,” said President Obama. “But they still make 77 cents for every dollar a man earns.”

Diana Furchtgott-Roth, now at the Manhattan Institute, explained the fallacy of president’s statement in her 2010 congressional testimony, “When the wage gap is analyzed by individual occupations, jobs and employee characteristics, regional labor markets, job titles, job responsibility, and experience; then the wage gap shrinks even more. When these differences are considered, many studies show that men and women make about the same.”

The systematic and overt on-the-job discrimination that President Obama implies is the root cause of the pay disparity between men and women simply doesn’t exist.

Ms. Furchtgott-Roth continues, “The danger is not that progress for women in slowing, but that Congress will overreact to false discrimination claims and pass legislation that will slow the growth of jobs in America for both men and women… [T]he danger is not that women have insufficient remedies for discrimination or few paths to the corner office, but that Congress will interfere and slow the economy, reducing job growth and family income.”

Instead of calling for more government intervention, President Obama should call for dramatic economic liberalization. Removing artificial government barriers to entrepreneurship, both onerous regulations and excessive taxation, would do far more to promote job growth and equity.

Millions of able, willing, and ready Americans have become so disheartened by the present economy that they have quit looking for a job. In other words, these Americans dropped out of the labor force. The labor force participation rate is the lowest in more than a generation, and the president’s approach to jobs is not helping the situation.

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