Economics teaches that full employment will be reached if wages adjust downward to a level that better reflects current circumstances. At lower wages, employers desire more workers. Labor markets generate persistent unemployment only if wages are sticky, failing to fall as demand declines.
Wages don't and won't drop for a number of reasons, beginning with federal and state minimum-wage laws.
Second, because union contracts generally cover multiple years, adjusting wages in response to economic circumstances would require a return to the bargaining table, which rarely happens.
Third, the natural reluctance of workers to accept lower pay is amplified by how their wages help define their identity. A $60,000-a-year worker might have a very hard time coming to terms with becoming a $40,000-a-year worker.
Finally, workers and jobs might be mismatched, either geographically or occupationally. Workers might be needed in places they don't want to move to or can't afford to live in.
There are many signs that these obstacles to lower wages are helping drive high unemployment today.
Democrats chose to lift the minimum wage at the worst possible time, just as wages should have been reduced. Since 2007, when the recession began, the federal minimum wage has risen from $5.15, to $7.25 an hour - an increase of 41 percent. Democrats in Congress proposed the three-stage increase, and President George W. Bush enacted it, as part of a spending measure that focused mainly on financing the war in Iraq.
Increasing labor costs via higher minimum wages at any time poses a risk of higher unemployment; doing so during a recessionary labor market is policy negligence. It would be nice, and perhaps fanciful, to think that if Democrats had seen the recession coming in 2007, they might have cut back on their minimum-wage blowout.
