Minimum Wage Increase? Just say no.

The Columbia Daily Tribune of 27th April, 2012 reports in an AP dispatch, “Minimum wage initiative clears hurdle,” that the ballot summary proposed for the initiative has survived a court challenge. The group Missouri Jobs with Justice (MoJWJ) wants an increase in the Missouri minimum wage to $8.25 starting in 2013 along with an annual cost of living adjustment. Unless a court challenge to the financial summary fails, the measure will be on the ballot in November.

Missouri Jobs with Justice is a far-left group with ties to labor unions, notably the SEIU, and community organizers. It has a particularly close relationship with organized labor, whose members benefit from every increase in the minimum wage, since increases at the bottom percolate up the wage ladder. They virtuously oppose ‘corporate greed,’ though someone ought to tell them that big greedy corporations employ very few at minimum wage.

 

The briefest look at the economics involved will tell us that minimum wage laws are a form of price fixing, which never delivers the unalloyed benefits claimed. In a relatively free market the hiring of a new employee is a transaction that would not take place unless both parties benefitted. From the employer’s point of view, the employee must generate more value than he costs. If the cost of labor rises by legal fiat to more than the value generated by the employee, the employee is not hired, let go, new businesses are not started up, or other bad things happen. These can include fewer hours for the employed, benefit reductions, loss of holidays, and similar effects that reduce growth and prosperity for all, the poor not least of all. This is why living-wage arguments always fail; otherwise we could conquer poverty at the stroke of a pen by increasing the minimum from the current $7.25 to $27.25 or $37.25.  Messing with free markets always has consequences, many of which are not readily visible. Prevailing wage legislation is a similar ill, which will be the subject of another post. It is unfortunate that the means chosen to assist the poor all too often do little or nothing of the sort.

 

MoJWJ and its fellow travelers claim that the inevitable negative economic costs are negligible, given the compelling moral case for high minimum wages. Who, in the words of St John, would close his heart to his brother in need? We share the belief that economics and moral issues are often two faces of the same coin. The outcome of this initiative, however, would have little to do with justice, always a problematic concept. First off, the self-interestedness of the unions is quite transparent. Then there are many questions about who is truly poor, who is our brother in need? Many people are poor in income, but are not poor in consumption; that is, they have more than adequate resources, valued recently as high as family income of $30,000 p.a.  If the government safety net is already more than adequate, the moral case for tinkering with the employment market disappears. We hold the principle that social welfare schemes should be open, transparent, and accomplished separately and outside the tax and regulatory environments. Instead of special tax and wage breaks for favored groups, it is far preferable to provide for those in true need through separate enabling legislation, not via special breaks, which always are captured by special interests. The costs of these breaks are hidden from the public -­ by design – ­­and shield from accountability the special interests and the politicians behind them. And finally we can think of few worse ways to create laws than through initiatives such as this one, sponsored with union money and masquerading as unqualified positive goods.

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One thought on “Minimum Wage Increase? Just say no.

  1. This is a really thoughtful and important essay. Minimum-wage laws really do not help low-wage earners in the long run. I can well remember raising the price of all the items in the drugstore where I was employed in response to an increase in the minimum wage law. Such wage increases serve as a hidden tax on everyone, and it is particularly irritating when done in an election year as a way for liberals to get out the vote. At the beginning the new wage may be helpful, but quite soon the impact on prices takes its toll, and with no productivity gain to be had everyone is worse off than before.

    Like the essay says which bears repeating: minimum-wage laws disregard the principles of supply and demand. The cost of labor, like the cost of anything in business, has a value depending on supply and demand. If the labor costs for the most minimally required tasks for a job is too high (and lets not forget that most of these are basic entry-level jobs), any number of unpredictable responses can happen that are not good for the minimum-wage employee. How many of these low-wage employees would rather have a job and the cash that job provides at $7.75 per hour, than no job at all at $8.75?

    Wages gained through productivity increases are the best hope for low-wage earners and the middle class–getting more education, developing better skills in doing a job, obtaining a more broadened work experience over time, working smarter, working faster, and developing ideas to help the employer cut costs without cutting quality are some of the things that can be done to achieve real productive wage gains. When one does these things everybody wins.

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