Thursday, January 29, 2009

The States and Minimum Wage

Unemployment is rising fast and Americans are looking for quick answers. Currently, President Obama is looking for the federal government to solve that problem and, frankly, that level of government is the primary reason why we are in this mess. The federal government ended the multi-year supply-side tax cut that kept the US going and growing in spite of wars and the implications of September 11th and has continually turned to failed "bail outs" that are not only not working, but will likely lead to hyperinflation like we have only read about in history books.

I think that the President should draw on the wisdom of the Founding Fathers and look towards state solutions to the unemployment crisis. The federal system created by our nation's early leaders points to the virtues of the states as a resource for answers. I think it is exactly where the President should go for employment answers and the place to start is minimum wage.

For some reason, the minimum wage issue has not even been discussed by our policy leaders, but I believe it may be as big as a contributor to our current situation as are some of the other factors that are debated about daily. According to the Bureau of Labor Statistics, unemployment has largely been below 5 percent for years until the summer of 2008. What happen then? The Congress had raised the largest increase in the minimum wage in 16 years. In July of 2009, that minimum wage will jump again to over $7 an hour. It is doubtful the economy can sustain such an increase and as a result, the federal government should consider an alternative approach, which is to eliminate the federal minimum wage entirely because it is a deterrent to job creation.

I know, it sounds radical, but instead of the federal government in Washington, DC telling states, often thousands of miles away, where they should keep their minimum wage; the US government should simply mandate the states to set their own basements. This would create competition among the states and give them a tool to radically change their own economies. Some states (like California) would likely keep the minimum wage at the same rate. Other states might set their own minimum wage but permit cities to have lower wages still if their economies demand such. For example, Camden, NJ; East St. Louis, MO; and Detroit, MI have suffered from long term depressions long before the national recession. This would give them what they need to turn their economies around.

For years states and cities have set minimum wages that are higher than the federal mandate (for example, San Francisco's is around $9 an hour). Minimum wage is not brain surgery and there is nothing about it that would make it necessary for the federal government to set it. It makes perfect sense for it to be determined by the people who are most profoundly affected by it and those are the states and the cities through out this country.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

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