Congressional Reality Check: The Laws of Supply and Demand Are NOT Optional
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 (two weeks from today), the federal government will be making it more difficult for employers to hire low-skilled 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.
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 (see graph above showing the 41% increase in the minimum wage from $5.15 in 2006 to $7.25 this year) 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.
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.
The laws of supply and demand are not optional. They weren’t enacted by Congress and Congress can’t override them. 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, therefore, to be unemployed.
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 (see cartoons below, both by Henry Payne of the Detroit News).
~Jeff Jacoby in the Boston Globe
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 (see graph above showing the 41% increase in the minimum wage from $5.15 in 2006 to $7.25 this year) 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.
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.
The laws of supply and demand are not optional. They weren’t enacted by Congress and Congress can’t override them. 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, therefore, to be unemployed.
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 (see cartoons below, both by Henry Payne of the Detroit News).
~Jeff Jacoby in the Boston Globe
24 Comments:
This just gives politicians a way to further vilify business and free-markets, and will only serve bolster the case for a second stimulus. The laws of supply and demand may not be optional, but that doesn't mean that people will stop trying to break them. Never underestimate political and "intellectual" hubris.
I am a free marketeer. But I will tell you this: We free marketeers and libertarians do ourselves a great disservice every day. Why? We concentrate on minor market distortions, such as the minimum wage, while looking the other way when it comes to the Department of Agriculture, extensive federal rural subsidies, the Department of Commerce, the home mortgage interest tax deduction, or any number of federal programs that are politically popular among the well-to-do.
We are thus perceived, perhaps accurately so, as poltroons, and minions for plutocrats. We assure ourselves a place on the sidelines, and probably in the dustbin of history.
This blog is yet another example of this deep weakness in the right-wing. I applaud Dr. Perry's energy and accessibility--but where is the daily diatribe against the $100 billion the federal government pours into rural America every year, siphoned from urban dwellers? How about a review of a military that drains $600 billion a year from taxpayers? No waste there? Should we reconsider bases in South Korea, a nation with an economy 40 times the size of North Koreas? S. Korea can't defend itself? And $7 billion for Pakistan? Why can't the effing Pakistanis get tough and drive the Taliban from the country? If they do not have the fortitude to defend their way of life, why should we do it?
I welcome critical review of the minimum wage and nationalized health care. But when much larger market distortions and intrusions are sacred cows, it looks like we free marketeers only have the guts to attack the weakest and poorest segments of our society. And when I look at the Republican Party, I realize that is true.
Feckless poltroons.
To worsen the situation, that minimum wage gap is then filled by illegals immigrants.
... but where is the daily diatribe against the $100 billion the federal government pours into rural America every year, siphoned from urban dwellers?
I wonder who is actually receiving the subsidy here, the rural farmer and/or agricultural conglomerate or the "urban dwellers" who get food stamps or pay less than they would otherwise for the food they consume.
How about a review of a military that drains $600 billion a year from taxpayers?
How about a review of government loans and other subsidies for college education? The military, like it or not, has a constitutional mandate and delivers when called upon, unlike the millions of perpetual adolescents who hide out at universities living off Daddy and the taxpayers while soaking up Marx and chanting, "Yes We Can".
Should we reconsider bases in South Korea, a nation with an economy 40 times the size of North Koreas? S. Korea can't defend itself?
Perhaps, you should actually read a history of the Korean War, you'll find that Russia and China played a big part. And while South Korea may have the means to defend itself against North Korea, against the other two their lost.
It's amazing how little appreciation you have for the world that you live in. It's not the result of some cosmic accident, it was passed to us from the calloused and bloody hands of those who came before. You might want to reflect a moment on the scale of that sacrifice and on the selflessness of the men and women who guard freedom's ramparts.
Why can't the effing Pakistanis get tough and drive the Taliban from the country? If they do not have the fortitude to defend their way of life, why should we do it?
See 9/11.
... it looks like we free marketeers only have the guts to attack the weakest and poorest segments of our society. And when I look at the Republican Party, I realize that is true.
In fact, "free marketeers" have created a condition of wealth and abundance greater than in all of human history. The "weakest and poorest segments of our society" are better provided for now than ever before, period.
As for the Republicans, not to worry, your Democrat heroes now have complete control of the government. I'm sure that everything will work out just as they promised.
Democracy is the theory that the common people know what they want, and deserve to get it good and hard.
- H.L. Mencken
Sorry, they are lost, not their. My bad.
There is, after all, a reason why one out of five jobs for teens have been lost since the number of jobs held by those Age 16-19 last peaked in June 2006.
As a percentage of the entire U.S. workforce, teens were last at the average level recorded during 2005-06 in December 2006. They definitively broke below that average level beginning in January 2007, as the then new majority party in the House passed an increase in the federal minimum wage during that month.
Let's keep in mind too - of that 20%, the first third of that loss came *before* the current recession began, but after employers began reacting to the proposed, then enacted legislation increasing the federal minimum wage in 2007. Much of which came during the two quarters of the year when GDP was growing at a 4.8%.
Anon--
You exactly make my point. There are sacred cows on the right, and we cannot even mention them. The Post Office? Oh sure, fire away.
The military? Hands off. Despite the fact the even internally, serious reformer know it is not designed for current circumstances. Shessh, even the results of war-games, in which guys on motorcycles and rpgs destroy our tank battalions, are suppressed.
If you read literature from the Cold War, the rationale for having 11 carrier strike forces, a blue water navy, an active air force -- in other words, the full panoply to fight two wars-- was deemed necessary due to the Soviet Union.
Well, the Soviet Union collapsed, and we still have the $600 billion (not counting expenditures in the Mideast) military. We are fighting a few punk terrorists with a military designed to engage in a major war. A war no other nation on war is even preparing to fight.
Who will invade the United States (other than about one million Mexicans a year)?
9/11? Are you kidding me? That is why we have spent $1 trillion and counting in Iran, Afghanie, Pakistan with no end in sight?
Some Saudi punks hijack airplanes, and we respond with an occupation of Iraq?
How about this: A $10 billion bounty on bin Laden's head, dead or alive. I suspect long ago mercenaries would have delivered the head to us. Something the US military and government, despite spending $1 trillion, has not done.
The private sector would have been better.
I know the history of S. Korea. So why are we stuill there, since the USSR has collapsed, and China has disavowed N. Korea's lunatic regime?
The S. Koreans, with an economy 40 times that of N. Korea, should be able to handle themselves.
We are there as every bureaucracy, including military bureaucracies, seeks to grow and sustain itself. It will find missions even if there are not any.
We are subsidizing electricity, roads, even medical facilities in rural America 70 years after the Dust Bowl.
The Dems are neither better nor worse than the Repubs--they just hand out our money to a different crowd.
But the Republicans, lacking the guts to truly stand for free market principles, do come off as weakling poltroons, a minions for plutocrats. And religious nuts.
Vote for a third party.
To worsen the situation, that minimum wage gap is then filled by illegals immigrants.
When they should be deported and blocked from the border by any force necessary, even if it kills them.
Curtail offshoring and other circumventions of US citizens, and require the use of partially-qualified citizens before even thinking immigration.
In fact, "free marketeers" have created a condition of wealth and abundance greater than in all of human history. The "weakest and poorest segments of our society" are better provided for now than ever before, period.
Tons of Third World junk, citizens penalized for being First World citizens, regulatory circumventions around our own nation that amount to near-treason, and aid to enemies like China and India do make quite the refutation to that argument.
We are thus perceived, perhaps accurately so, as poltroons, and minions for plutocrats. We assure ourselves a place on the sidelines, and probably in the dustbin of history.
You think you are beyond reach because you channel entities that are supposedly "untouchable" and "unassailable". It should be no wonder why you are given such status and attract people of such low moral character.
No wonder you get people who wish to try to fill the role of the Almighty. The problem is that it is, has, and will never be vacant.
This just gives politicians a way to further vilify business and free-markets,
Both of which have earned their reputations of less-than-honest in their dealings. They both give influence to unelected officials in unstable and hostile nations over ours, they ship unreliable and deadly products from those nations, circumvent US citizens in work, and have the arrogance to cut off the means for the US citizens to fix the mess.
Why do you act surprised when you hear the guilty verdict?
Ethanol is another federal subsidy to rural areas and farmers. It will become a permanent part of our government and economy.
It is another example of a market intrusion endorsed and embraced by the Republican Party.
But, let's beat up on those guys making minimum wage.
NOBODY is beating up the little guys making minimum wage except the people who pass higher minimum wage laws.
A few people get a higher wage and a few people lose their jobs or are unable to find them. (Unless the price floor is not binding, but in a recession, yeah, it is binding.)
You are in fine form today, snotstorm. That's two completely unintelligable rants back to back.
Well seth, because I've worked for companies that have done nothing wrong and are good corporate citizens. Yet these same companies are hated by certain special interest groups and lumped in with bad companies that behaved as you said. So I KNOW that companies are at times falsely portrayed by politicians and the media as evil, when that is not the case.
Wal-mart is a good example. Why does the media paint Wal-mart with the evil corporation brush? Because people say that Wal-mart destroys local business and abuses their employess. While local business that cannot compete will be eliminated, the consumer benefits by the increased purchasing power of their dollar. Wal-mart jobs are low-paying, but as Dr. Perry has posted before they are one of the few companies actually adding people now. So you can look at Walmart in two different ways. I'm guessing from your post that you would tend to agree with the premise that Wal-mart is NOT a "good" company, while I would contend that it IS a "good" company.
So to answer your question, I'm always surprised to hear the "guilty" verdict when there's always two sides to the story but only one side gets presented as the "truth". In the case of minimum wage policy it gets worse. As I said, congress raises wages to "help" people and advertises it as such. They know full well that it will lead to more unemployment for low/unskilled labor, and then can use that unemployment as an example of the failure of business to provide adequate employment. Business is more than capable of providing employment, just not ALWAYS within the range of what congress may feel is right level of employment and compensation.
Anybody read the comments of that article? They are hilarious.
Well seth, because I've worked for companies that have done nothing wrong and are good corporate citizens.
I've done the same and the only thing they were a target of was Bill O'Reilly. Unlike Wal-mart, there were practices tolerated (but not fully accepted) there that would have Bentonville flying out hired-gun lawyers and PR officials on short notice.
Wal-mart is a good example. Why does the media paint Wal-mart with the evil corporation brush?
The folks who inherited it from Sam still have a grip on the company. I'd like to know how fast he's currently spinning since those folks have done things that Sam would have not done and gone where he would not have gone.
Giving them the ability to act as the Almighty is not the way to go. All you create is a bunch of people who peddle junk-quality trinkets from Chinese thugs. Any local content can safely be considered window dressing from Public Relations.
I'm guessing from your post that you would tend to agree with the premise that Wal-mart is NOT a "good" company, while I would contend that it IS a "good" company.
You guessed correctly. I've yet to ring up a post-Sam Walton transaction there; I consider purchases there equivalent to donating to the Chinese Communist Party. There is no amount of hollow PR work on their part that would change that.
Business is more than capable of providing employment, just not ALWAYS within the range of what congress may feel is right level of employment and compensation.
Well, consider it a measure that ensures working conditions and professions inconsistent with slave labor. It provides a disincentive to even approach in that direction.
It wasn't designed to provide gold-plated benefits. What it does do is go a long way to kill off bad practices of late 19th/early 20th century company towns.
seth,
I'm glad that you're job pays well enough for you to afford to boycott Wal-mart. I must admit that I'm confused about one of your comments though. You are against shopping at Wal-mart because you feel it's equivalent to giving money to the Chinese communist party? Why do you dislike them? I'm pretty sure your economic ideas would fit right in at a Chinese state-run company. I'm not calling you a communist, so please don't take it as such. I'm just curious what your grievance with them is. After all, you seem to prefer the idea of central planning to free markets and that puts you both in the same corner.
Well, Ironman, teen unemployment didn't increase with the 1978-1981 minimum wage increases until the economy fell into recession.
Anonymous @ 7/10/2009 11:47 AM, that was seriously excellent fisking of Benny...
Benny says: "If you read literature from the Cold War, the rationale for having 11 carrier strike forces, a blue water navy, an active air force -- in other words, the full panoply to fight two wars-- was deemed necessary due to the Soviet Union"...
Well Benny even a skeptical perusing of the MSM and their questionable content shows me at least that being weaker isn't being smarter...
Wal-mart jobs are low-paying, but as Dr. Perry has posted before they are one of the few companies actually adding people now.
It is a pitiful insight into the state of the U.S. economy that a retailer of Chinese goods is such a bright spot. The jobs added are just "shuffling the deck chairs" jobs.
The U.S. will stop the ravenous borrowing from the future when high value-added jobs make substantial gains in the percentage of the workforce. The situation now is delusional based on government transfer payments increasing GDP.
The opening sentence in my comment above is a quote from Patrick -- sorry for the quotation marks.
Blogger Patrick said...
Nice to regurgitate an old line that dodges the problem.
The U.S. will stop the ravenous borrowing from the future when high value-added jobs make substantial gains in the percentage of the workforce.
Or when you can't evade US workers with shady immigration laws.
That is, they'll have to make do with US citizens, even if they have to fill in the training as done before.
anon @ 6:40 PM says: "Well, Ironman, teen unemployment didn't increase with the 1978-1981 minimum wage increases until the economy fell into recession"...
According which CREDIBLE source?
Hey sethstorm how do you dream up stuff like the following?
"The folks who inherited it from Sam still have a grip on the company. I'd like to know how fast he's currently spinning since those folks have done things that Sam would have not done and gone where he would not have gone"...
I mean you've yet to offer anything (let alone credible) to back up the silliness you put out there...
Hey sethstorm how do you dream up stuff like the following?
I don't. The business practices of Sam were far different from the Benedicts who followed him.
Compare the two. Who sold out to China? Who hates the US? Who made them into the organization that should fall foul of both targets of oaths containing "enemies foreign and domestic" if not treason? Sam Walton is the answer to none of those questions.
I for one do not genuflect in their direction, unlike you.
While I concur that increasing the minimum wage increases unemployment (how could it not?), I'm unsure of the effect of the FEDERAL minimum wage.
In California, we have a STATE minimum wage of $8. Of course, we also have 11.5% unemployment, 4th worst in the country.
Given that the new federal minimum wage is $7.25, it appears to have zero effect in our state. My question is, how many states have minimum wages above the new federal minimum wage of $7.25? Any other big states? Perhaps a URL could help answer this?
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