the real cost of good intentions
by J.C Phillips
In spite of political rhetoric to the contrary, it is an economic fact that the government can set the price of labor, but the government cannot determine the value of that labor. Whenever the price of labor exceeds its value, that job will be eliminated, automated, absorbed by others or replaced with lower priced labor. This may explain why virtually every empirical study of the minimum wage has found that the minimum wage results in a net decrease in jobs.
A study conducted by the National Center for Policy Analysis reports, “The magnitude of the unemployment effects of minimum wage increases can be questioned, but the existence of those effects cannot.” Indeed, advocates of the minimum wage do not dispute that there is indeed a nexus between the minimum wage and job loss. They simply hold that an incremental increase of the minimum wage implemented slowly over time will nullify the laws of economics and that the negative of jobs lost by some will become a net positive by the increase in wages for others.
Oddly enough, such arguments by defenders of the minimum wage depend on faith in another economic law: A dynamic economy creates jobs -- even low skilled jobs. When worker productivity is high and unemployment is low, there is upward pressure on wages. Increased productivity drives innovation and the creation of new businesses, which creates jobs.
Democrats have been very vocal about the failing American economy even as they push for an increase in the minimum wage. New Mexico governor Bill Richardson for example in declaring his intention to seek the Democratic nomination for president described the U.S. economy as “languishing,” thus illustrating one of the great ironies of the minimum wage debate. Democrats are able to propose an incremental increase in the minimum wage only because the economy is thriving. More than 7 million new jobs have been created since August of 2003 and the unemployment rate is below 5% , real wages have grown at 2.3 % over the last 12 months, well above the average of the 1990’s and over the last three decades worker productivity has more than doubled. The idea of government arbitrarily setting the price of labor is politically viable only because of the dynamism of the American economy.
It is also the same dynamism of the economy that renders the minimum wage a dinosaur of our new deal past. A thriving economy makes the minimum wage almost irrelevant as evidenced by the fact that wages for many low skilled jobs are currently well above the minimum wage even for illegal immigrant labor.
The day laborers looking for work in the parking lots of Home Depot stores across the country are not regulated by the government, nor do they work for slave wages. In fact, try offering any of these men as little as minimum wage and you are liable to get your feelings hurt. No matter their immigration status, they all speak the international language of $8-$10 per hour. The same is true of nannies and house keepers working in the Los Angeles area. Families looking for a little help during the day are not guided by minimum wage laws and yet the pay for domestic help is well above the minimum wage.
The absence of a minimum wage will certainly mean that wages for some jobs will fall below the previous federal minimums. Those jobs however, were overpriced for their value and very likely would have been eliminated. We cannot simply wish the laws of economics away. Employers, like all consumers are perfectly willing to pay for value. Rather than mandate a minimum wage that even they concede will cost jobs, the best thing Democrats in Congress can do is to keep taxes low, resist the urge to heap regulations onto business and continue to stoke the fires of a growing and dynamic economy.
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