Friday, August 11, 2006

Minimum Wage, Minimal Thinking

Recently one of my sons, overhearing a news story about minimum wage, asked me the question “dad, why is minimum wage so low?” I was surprised he knew what minimum wage was, but was glad to have the discussion with him. I asked him, “how low is too low?” He said it was “around 5 bucks.” Pretty close, it is $5.15. I asked him why he thought it was so low. He said “it isn’t enough money.” I said, “no, why do you think they set it at such a low rate?” “Oh, I don’t know. It would be great if it were $10, $20, or even more an hour.” “What if the job isn’t worth more than $5.15 an hour?” He looked puzzled. “I guess the job would go away.” “So if Congress raises it to $7.25, what happens to jobs worth less than that?” He now looked concerned. He said, “gone too?” Than he asked, “why do they have minimum wage at all?” I think he is getting it. Congress is arguing that, after almost ten years and a strong economy, it is time for an increase. Furthermore, Republicans (who are, oddly, the chief supporter of this increase) can go back home and campaign as doing something for the little guy.

Many economists are minimizing the negative impact, saying that the economy can absorb the increase. But historically, such increases have led to increases in unemployment for the people that are suppose to benefit most from such a policy – young people, minorities, and the under skilled. There have always been increases in unemployment with increases in minimum wage.

Furthermore, the problems won’t end there. My wife, who is far more perceptive when it comes to economics than most Members of Congress remarked, “this is going to increase prices” and “whatever amount people get in increase wages will be eaten up with higher costs.” She understands that costs are derived by a several key factors, one of the biggest is labor. When labor costs go up, so do prices. Good-bye higher wages.

So who are the chief beneficiaries of a minimum wage increase? The first are the politicians who will likely convince voters of their compassion through passing this wage increase. The second is the government, which will probably enjoy increased revenue because of higher sales (and even income taxes) because of the higher costs that will follow.

The losers will likely be the very people this is suppose to benefit – young people, minorities, and the under skilled. Minimum wage, minimal thinking, we certainly deserve better in our land of opportunity.


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