Raising the Minimum Wage Law

February 13, 2013 — 1 Comment

minimum_wage_custom-8614e5bd8d516fbadd22d4a09fff441a70ba1596-s6-c10Raising the minimum wage law seems like a harmless thing to do. How can it be bad to pay people more?

But this line of thinking shows complete lack of understanding of the basics of economics.

It focuses solely on the receiver, neglecting that there must be someone else on the other end as the giver. Money does not just appear (except in Washington where they print it).

In short although it may seem like it is helping workers, it is hurting employers, which hurts workers. The employers will be forced to pay a rate that they may not be able to keep up with to keep the business flourishing. The effect is that they may have to either lay off workers or hire less.

Another problem with raising the minimum wage is that it adversely effects inflation. If the minimum wage is raised, then everyone demands to get paid more and the previous money they made is worth less.

In effect it punishes those who have saved the “little” they received all their life.

I am not saying that the minimum wage should never be raised, because it does need to keep up with inflation. But the change should be minor and incremental, unlike what the President is proposing.

Milton Friedman explains this well in the video below.

Thomas Sowell also wrote about how the minimum wage hurts young blacks.

Liberals try to show their concern for the poor by raising the minimum wage. Yet they show no interest in hard evidence that minimum-wage laws create disastrous levels of unemployment among young blacks in this country, as such laws created high unemployment rates among young people in general in European countries.

The two most recent books that show this with hard facts are Mismatch by Richard Sander and Stuart Taylor Jr. and Wounds That Will Not Heal by Russell K. Nieli. My own book Affirmative Action around the World shows the same thing with different evidence.

In all these cases, and many others, liberals take positions that make them look good and feel good — and show very little interest in the actual consequences for others, even when liberal policies are leaving havoc in their wake.

In the book Foundations of Economics Shawn Ritenour writes

It boggles the mind that contemporary policy makers and a large set of the intelligentsia still think that raising the minimum wage helps the working poor. In a free market there is a tendency for workers to be paid according to the economic contribution of the marginal laborer. Increasing the minimum wage does not make workers more productive. Therefore, if the government raises a wage floor above the market wage, the quantity of workers hired will decrease and unemployment will occur. This is the last thing we want to do if we are unhappy with our continuing high unemployment rate.

In saying this, I do not mean to be callous to the concerns of the working poor and unemployed. Far from it. Real compassion requires telling the truth.

Michael Saltsman wrote an article with the WSJ on this subject entitled “How to Put a Waitress Out of Work.”

Don’t be fooled by this proposal wearing a compassionate face. Underneath it all there is only more tears.

Patrick Schreiner

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I teach New Testament at Western Seminary in Portland, Oregon. I am married with three children. This blog, against all wisdom, includes anything I am interested in. That includes movies, music, theology, culture, hermeneutics, the Gospels, and politics. Feel free to comment and let me know you are reading or that you have found something helpful. I reserve the right to delete unhelpful or rude comments. Many of these posts are simply things I find interesting and therefore I am not asserting I agree with everything I link to.

One response to Raising the Minimum Wage Law

  1. Good thoughts Patrick. Another thing I would add is that if you raise minimum wage across the board, most companies will have to raise the prices they charge for their products to compensate. Businesses exist to make money, not to provide jobs. The jobs are just a great benefit for the rest of us. Some companies like Apple and other huge corporations may be able to absorb the cost without having to raise the prices for their goods, but the vast majority of companies operate with a very slim profit margin.

    So when a company’s expenses rise to cut into its (probably) already slim profit, the company will raise its prices to reclaim its profit margin, just like product prices go up when gas prices increase. Companies don’t eat the shipping costs, but pass them along to consumers. It isn’t a big deal when one or two companies do that, but with a national wage increase, every company faces this issue and so prices will raise across the board. And when that happens, the new minimum wage might look a bit higher but in reality the purchasing power is about the same as it used to be.

    Additionally, the idea of a national minimum wage grossly oversimplifies the issue. Yes, it is a good thing to want people to make enough money to live on, but does setting one bar for everyone make any sense? Does the 16 year old living with his parents need the same as the single mother of 2? Does the guy living in New York need the same as someone in Texas? Of course not.

    You’re exactly right. While the raising the minimum wage sounds great (Let’s give the poor a raise so they aren’t poor anymore), it simply doesn’t work economically. Bumping the wage up 20%+ isn’t going to accomplish what they want it to.

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