Minimum Wage, Maximum Folly
From today's WSJ, an editorial "The Wages of Politics" on the minimum wage:
Raising the minimum wage has been a hardy perennial of the left for decades now. What is striking is the degree to which is has come to be seen as an economic free lunch. Even some reputedly unbiased economists have started to tout the view that raising the minimum wage has no discernible effect on job creation.The main question is: How can the thousands of unskilled workers who will be unemployed as a direct result of the minimum wage be better off without a $7.25-an-hour job than they would be with a job that pays $5.15 an hour?
But if this were true, they'd be calling for a $10, $20 or even $50-an-hour minimum wage. They're not, and neither is Nancy Pelosi. That's because the Law of Demand is one of the most dependable precepts of economics. It says that when the price of something goes up, demand for it goes down. An employee's wages are the price the employer pays for his services, so raising their wages means forcing employers to pay more for workers. The price goes up and there is downward pressure on demand for workers. Other things being equal, jobs are lost.
It is implicit in the logic behind raising the minimum wage that if we squeeze employers just a little, they won't even notice. Another argument, this one made explicitly, is that jobs are destroyed, but the wage gains more than make up for the reduced number of jobs. But this is only true if it's not your job that is destroyed. If you are a young black male, you are slightly more likely than the general population to be paid minimum wage, but you are almost 10 times as likely not to have a job at all. And if you're unemployed, raising the minimum wage not only doesn't help you find a job; it probably hurts. Welcome to Speaker Pelosi's idea of progress.
The real problem facing the workers affected by the minimum wage is not that they are underpaid, but that they are under-skilled. Unskilled workers don't need our intuition and humanitarian intentions. They need employment so they can gain valuable work skills.
As the NY Times so correctly said in an editorial on January 14, 1987, "The Right Minimum Wage: $0.00."