President Ma Ying-jeou (馬英九) has a penchant for lecturing the public about economics. Earlier this year, his government insisted on raising the prices of gasoline and electricity, albeit reluctantly and after much hesitation. Now the Ma administration has once more demonstrated its singular economic talents in relation to another issue — the minimum wage.
The Cabinet gave Minister Without Portfolio Kuan Chung-ming (管中閔) the task of announcing its final policy orientation on the issue, saying that raising the minimum wage would squeeze employers by increasing their labor costs, which at a time of recession would probably have a negative impact on employment opportunities. Therefore, it was the wrong time to increase the minimum wage.
The strange thing is that other economists have a different opinion. In 2006, 650 US economists affiliated with the American Economic Association signed a statement calling for federal and state minimum wages to be raised. Their statement says that “modest increases in … minimum wages … can significantly improve the lives of low-income workers and their families, without the adverse effects that critics have claimed” — even during a recession.
Princeton University economics professor Alan Blinder, who is a former vice chairman of the US Federal Reserve, said in an interview in 2006: “My thinking on this has changed dramatically. The evidence appears to be against the simple-minded theory that a modest increase in the minimum wage causes substantial job loss.”
Blinder also questioned this theory in the 2006 edition of his popular introductory economics textbook, saying: “Some surprising economic research published in the 1990s cast serious doubt on this conventional wisdom.”
Even in 2009, when the financial crisis was at its worst, the US still raised the federal minimum wage by more than 10 percent. Around the same time, civic groups in Europe launched a campaign for a European minimum wage policy. European economists even proposed that the minimum wage should be at least 50 percent of the average wage in the various European countries.
What about Taiwan? The proposed minimum monthly wage of NT$19,047, which has now been put on hold, is nowhere near 50 percent of the average wage, which is around NT$45,000. If you take into account the serious fall in real wages that Taiwan has experienced in recent years, the ratio of these figures represents an even more sorry state of affairs in our society.
Many European observers are of the opinion that present-day economics has got bogged down with complex models, and that it keeps denying the reality that removing labor regulations and intentionally suppressing working conditions only serves to create greater negative effects.
These critics say that some economists only care about abstract scientific models and do not take the real situation into account or negative social effects.
The general equilibrium theory of the labor market on which Kuan bases his policy positions brings to mind what some people in Europe jokingly call “economic theology,” and the doctrine of this “theology” is the market.
The Ma administration has already shown itself to be pretty incompetent in the field of economics. If Ma now intends to deliver a lecture based on this kind of economic theory, perhaps it would be a good idea for everyone to skip class.
Lin Chia-ho is an assistant professor at National Chengchi University’s College of Law.
Translated by Julian Clegg