Welcome, this is Cato Daily Podcast. Today is Thursday, February 8th and I'm your host Anastasia

Glova. Speaker of the House Nancy Pelosi has successfully pushed the minimum wage hike, which is one of the

major items on her first 100 hours

agenda through the House and Senate. The Fair Minimum Wage Act of 2007 would raise

the federal minimum wage from 515 to 725 an hour over two years, raising questions about how

the increase will affect employment. Cato's Vice President for Academic Affairs, Jim Dorn, who has

written on the issue, thinks that the hike is just

a band-aid solution that will, in the long run, make things worse for the very people it's trying

to help.

A lot of economists say that a minimum wage hike would have almost no negative

employment effect. Do you agree with this?

Well, it depends upon how high the minimum wage is placed. The present minimum wage is 515. They want to put it up to 725 an hour.

It's a 40% increase over three years. So that's a sizable increase.

So if you believe in the law of demand, which most economists do, in fact all economists that I know,

means higher prices lead to a decrease in the quantity demanded, in this case, the quantity of labor by the employer.

So it has to have some effect on employment. Now in the short run it may have a rather minor effect, but in the longer run employers will make substitutions and they'll move to ways to save on higher price labor. So most of the studies show that the long-run effects are much greater than the short-run effects.

So they will be negative effects on employment. The question is, what will be the effect on income?

Because people that retain their jobs at a

higher wage rate are obviously better off but those people that lose their jobs

will have a zero income unless they can find employment someplace else at lower

wage rates so the net effect on income is what people debate and as far as the overall

effect, the people that lose are the ones typically from low income or around the poverty

...