Minimum Wage Increase: False Boost For Economy

       Beginning in July, the House
of Representatives wants to force businesses to discriminate against low-skilled
workers.

       By raising the minimum
wage, the government only puts the most economically vulnerable Americans
out of work.

       Politicians tend to believe
government possesses some sort of mystical power to alter economic reality.
With a wave of the magic government wand, wages simply increase with no
adverse effect anywhere in the economy.

       In a free labor market,
wages are based on the demand for certain skills. A restaurant owner might
decided to boost profits by hiring another person to take orders, and
decides it is worth $4.25 per hour to hire someone to do that job.

       What happens when the minimum
wage is set at $5 per hour? The restaurant owner decides not to create
the position because it’s no longer profitable to do so, and a low-skill
job is lost. In this way, the minimum wage shrinks job opportunities for
individuals who possess few marketable skills and condemns many of them
to perpetual unemployment.

       This effectively forces
the business owner to discriminate against low-skilled workers. By preventing
the business owners from offering jobs below the minimum wage, the government
says to low skilled workers, “No matter how hard you try, we’re not going
to let anyone employ you.”

       In fact decades of minimum
wage laws produce permanent unemployment in the United States. No matter
how good the economy is doing there is always a level of 5 or 6 percent
of people who never seem to find work. One large component of this group
of permanently unemployed are people employable at blow the minimum age
who have largely abandoned hope of escaping poverty. Raising the minimum
wage simply increases this level of permanent unemployment.

       Some supporters of the
minimum wage wonder why anyone should have to work for less than the minimum
wage. Certainly a person cannot make much of a living working at the minimum
wage, much less below it.

       In their attempt to display
their overwhelming and single-minded compassion, however, such people
miss the point. No one suggests low-skilled people should work their entire
lives in low paying jobs. Instead, those jobs are the best place for low
skilled workers to gain the necessary skills to get higher paying jobs.

       Someone working in a restaurant
at $4 per hour will acquire the skills necessary to work up to a higher
wage level. This is the only way to promote long term economic mobility
at the bottom rungs of the economic ladder.

       Instead of allowing this
to happen, minimum wage supporters relegate low skilled workers to welfare
and other forms of government assistance. This sort of “help” has proved
a resounding failure over the last 30 years. Welfare and other programs
have been little more than black holes for the poor, permanently trapping
many of them in the cycle of poverty.

       Other supporters of minimum
wages cite the example of New Jersey and other areas which raised their
minimum wage yet saw employment rates increase. This claim is little more
than sophistry.

       New Jersey experienced tremendous
economic growth which raised the general wage rate above the level of
the minimum wage. If the minimum wage is $5 per hour but competition for
labor raises the going wage rage for unskilled labor to $6 per hour, of
course minimum wage laws do no harm, largely because they also do no good.
No minimum wage law is necessary when low skilled workers can already
command more than the minimum on the labor market.

       The bottom line is there
is no quick fix to raising wage rates. Over the long term the only way
to do so is by increasing the productivity of labor through capital accumulation,
increased efficiency and technological innovation. Instead of putting
people out of work with a minimum wage increase, government should be
encouraging capital accumulation, such as the purchase of new and better
machinery, by eliminating obstacles to investment such as the capital
gains tax.

       That would help unskilled workers
a lot more than permanently relegating them to the wasteland of unemployment
and welfare.

This article originally appeared in the Western Herald.

Post Revisions:

There are no revisions for this post.

Leave a Reply