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July 20, 2006

The Chairman Speaks: Bernanke vs. Krugman On The Minimum Wage

Paul Krugman last week, via Hypothetical Bias:

Krugman says raise the minimum wage to reverse growing income inequality

Krugman says ($):

Can anything be done to spread the benefits of a growing economy more widely? Of course. A good start would be to increase the minimum wage, which in real terms is at its lowest level in half a century.

Ben Bernanke yesterday:

... I agree that inequality is potentially a concern for the U.S. economy...

That, however, is a development, a trend, that's been going on for about 25 years now, according to most of the studies. And it's therefore a big challenge to think about what to do about it....

But I do think that, fundamentally, the increased importance of skilled jobs and of technology in our society puts a higher premium on people with more education, more experience and more skills.

And I think that, really, the only long-term solution to this problem is to try to upgrade the skill levels of our workers...

Then, on to a question about the minimum wage specifically:

The research on this is controversial. Some people argue that the effect is very small. Others think it's larger.

My inclination is to say that you'd like to find ways of increasing the return to work which don't have the effect of potentially shutting some people out of the workforce.

And so I think I would agree that -- and I've said this in previous testimony -- that the earned income tax credit, which provides extra income to people who are working, and skills and training, increased training for increased skills and productivity, are in my opinion probably more effective ways to approach this question.

You may now choose sides.