Many of my friends on the left are astounded at people who state they are not in favor of minimum wage laws. "How can you be so selfish; so unthinking, so unconcerned about the lives of those who earn very little?!" they hurl at us.
Well, we can be as we are not because we are nasty brutes - but because we are realists and understand how markets work. If you raise the cost of labor too high for a particular market, then you do not get an employee receiving a higher salary. You get an ex-employee - or one who will never be hired. If an employer cannot afford whatever a minimum wage level might be, then he either lets employees go, doesn't hire them to begin with - or, in worst cases, just goes out of business. Jeff Jacoby well explains how this works.
Were the government to compel a 41 percent increase in the price of gasoline or movie tickets or steel, every rational observer would expect a drop in the demand for gasoline, movie tickets, or steel. Yet when it comes to the minimum wage, politicians and journalists somehow persuade themselves that making workers more expensive won't reduce the demand for workers. Senator Edward Kennedy, for example, blithely asserts: "History clearly shows that raising the minimum wage has not had any negative impact on jobs." Activist Holly Sklar, campaigning for a $10 minimum wage, likewise insists that "raising the minimum wage does not increase unemployment in good times or bad."
But that's exactly what it does. Artificial price floors -- mandatory minimum prices set higher than what the market will bear -- generate surpluses. Minimum-wage laws are no exception. The price floor imposed by the government on the supply of low-skilled labor results in a labor surplus, which is just another way of saying higher unemployment. How much higher? Economists Joseph Sabia of American University and Richard Burkhauser of Cornell estimate that the minimum-wage hikes of the past two years will wipe out more than 390,000 jobs. According to David Neumark of the University of California at Irvine, an expert on labor force economics, the minimum-wage jump scheduled for this month "will lead to the loss of an additional 300,000 jobs among teens and young adults."
It is bad enough that Congress and the president would deliberately price so many workers out of the market. What is worse is that they claim to be helping the poor when they do so. As a presidential candidate, Barack Obama backed a minimum-wage of $9.50 an hour because, his website explained, he "believes that people who work full time should not live in poverty." But if helping the poor is the goal, making it harder for them to get that crucial first job -- the one that may not pay much at first, but that gives new workers their first foothold in the job market -- is not the way to achieve it.
The best way to work your way to financial success is to get started, work hard and work your way up the ladder. If impediments will not allow you on that first rung, then the top of the ladder is an impossible dream. Again, as Jacoby states:
Politicians cannot cure poverty by raising the cost of entry-level employment any more than they can do so by waving a magic wand. After all, if aiding the needy were as easy as setting a compulsory minimum wage, why not set it at $20 an hour -- or better yet, $120 an hour -- and really help them out?
The laws of supply and demand are not optional. They weren't enacted by Congress and Congress cannot override them.
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