COP:Minimum-wage folly

Jeff Jacoby
The Boston Globe
July 8, 2009

http://www.jeffjacoby.com/5818/minimum-wage-folly

AS IF THE RECESSION hasn't been rough enough on those near the bottom of the economic food chain, fresh bad news is on the way. Beginning July 24, the federal government will be making it more difficult for employers to hire low- and unskilled American workers. Thanks to an ill-advised law enacted with bipartisan support in 2007, the cost of providing an entry-level job to individuals with few skills or minimal experience will be going up by more than 10 percent. Those who cannot find a job paying at least $7.25 an hour will not be permitted to work.

Welcome to the latest chapter of America's minimum-wage folly.. This will mark the third time in recent years that Washington has forced up the cost of employing low-skilled workers. Last July the minimum hourly wage was increased from $5.85 to $6.55; the July before that, from $5.15 to $5.85. By the end of this month, in other words, the lowest rung on the employment ladder will be nearly 41 percent higher than it was just two years ago. Needless to say, that will put it beyond the reach of many marginal workers, leaving them without work.

Those who press for a higher minimum wage often claim that making entry-level jobs more expensive won't reduce the number of entry-level jobs. 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.

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. Of course a higher minimum wage may benefit some low-skilled workers. But there are innumerable others whom it harms: Those who lose their jobs or can't get hired in the first place because the higher rate is more than their labor is worth. Those whose employers compensate for the wage increase by cutting employees' hours. Those whose jobs are outsourced to a market with lower labor costs.

Minimum-wage laws don't make low- and unskilled Americans more productive, more experienced, or more desirable. They merely make them more expensive -- and more likely, as a consequence, to be unemployed.

(Jeff Jacoby is a columnist for The Boston Globe.)

Comment: Even those with only a basic understanding of economics know this is another hurdle for our economy. It is past time for our elected "leaders" to stop pretending they are leaders-they are damaging our ability to do business in order for them to say they are looking out for the down trodden-this is folly at its worst. What it does do is make voters dependent upon the government even more thus "assuring an increase in their voting numbers"-absolutely disgraceful!