THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, September 4, 1996 TAG: 9609040006
SECTION: FRONT PAGE: A10 EDITION: FINAL
TYPE: Editorial
LENGTH: 63 lines
A new report by one of the Western world's most-authoritative economic organizations raises questions about the age-old belief that low wages contribute to low unemployment.
The report, by the Organization for Economic Cooperation and Development, holds special significance for the United States, because we are, comparatively speaking, a low-wage country, and for Hampton Roads, where wages are well below the national average.
Among Western industrialized countries, America has by far the biggest share of its work force in low-paid jobs, according to an Aug. 25 story in the Virginian-Pilot. The United States and Britain are the only nations where wage inequality is expanding quickly, and the United States, Australia and New Zealand are the only ones where wages at the bottom of the scale are actually falling when adjusted for inflation.
It's widely argued that low wages encourage employers to hire low-skilled, poorly educated workers, keeping unemployment low. Thus low wages are said to serve a useful social purpose.
If low wages do lead to high employment, the United States, as a relatively low-wage nation, should have far lower unemployment rates than other Western industrial nations.
In fact, it's not clear, according to the report, that unemployment is lower here than in higher-wage countries or that higher-wage nations could lower their unemployment by lowering their wages.
In the United States, the minimum hourly wage has been $4.25, compared with the effective minimum hourly wage of about $9 in France and Germany.
It's true that some European countries with relatively high wages have high unemployment - 11.6 percent in France, 12.2 percent in Italy, 22.7 percent in Spain. Other European nations with equally high wages, however, have relatively low unemployment - 4.9 percent in Norway, 6.5 percent in the Netherlands, 8.2 percent in Germany.
The U.S. jobless rate, officially 5.4 percent, is misleading. If you lose your job, you are counted as unemployed until you use up unemployment benefits. Then, for the purpose of measuring unemployment, you no longer exist. Put another way, we don't count long-term unemployed as unemployed.
Lester Thurow, an economist at the Massachusetts Institute of Technology, says the country's unemployment rate would be 14 percent if those hidden unemployed were counted, along with the millions of part-timers who don't count as unemployed, though they want full-time jobs. If prisoners were counted among the unemployed, the unemployment rate would rise another 1.5 percent to 2 percent.
The international report concluded that there is no statistical connection between low wages and low unemployment. The report says the ``correlations are low and not significant.''
If the report is right, business groups that predicted the loss of up to 400,000 jobs after the minimum wage is raised to $5.15 on Sept. 1 will be proved wrong.
Even at the higher pay rate, the workers will remain paupers by European standards.
It's a kick in the pants to see the United States cited as a low-wage example in an international economic study. On the other hand, living costs and taxes are far lower here than in Europe, so less is needed to survive.
We still lead the Western industrialized nations in pay at the high end of the scale, but at the low end, we trail and fall farther behind.
The social benefits of low pay may be less than many economists had thought. by CNB