Wednesday, October 18, 2006

Minimum wage = minimum jobs
Several states have ballot initiatives proposing an increase to the state's minimum wage (see National Review column). Aside from being a blatant attempt to increase turnout among low-income (aka Democratic) voters, this is part of the larger liberal class envy strategy. They argue people are entitled to a "living wage" and only greedy, corporate types with no sympathy for the poor would oppose increasing the minimum wage. Here's the other side of the story, what Howard Dean considers "economists' mumbo-jumbo":

With the exception of the minimum wage, the market typically sets wages in our country, home to the greatest economy the world has ever seen. Messing with market dynamics causes inefficiency in the economy, lowering its productivity. Who cares? Just fat cats right? Wrong. Raising the minimum wage hurts low income workers in two ways. First, cost of living rises, hurting low income workers the most. For example, if WalMart is forced to increase spending on health insurance or wages, their prices must go up. The poor are hurt the most by higher prices for groceries and basic necessities. Second, when the price of a good or service goes up, the demand for that good or service typically goes down. For example, if Little Caesar's has to pay its employees $8 an hour instead of $6, they will have to raise the price of their $6 Hot N Ready pizza. Say the current demand per store is 100 per day. At $8 per pizza, demand may drop to, let's say 70 per day. People will be more likely to stay home and have gross Red Baron pizza. That means 30 fewer pizzas need to be made and the manager at Little Caesar's will need fewer employees each night. This all translates into fewer jobs for low-income (unskilled) workers.

Strong employment numbers (like what we're seeing now) benefit the unskilled. Employers are forced by the market to offer better wages in order to compete for workers. If workers want more, they can acquire skills and become more valuable to a company (as this former Little Caesar's employee did). Let the market work for the good of everyone. If you want to help the poor, pay attention to the economists' mumbo-jumbo or you may end up hurting instead.

No comments: