Raising the minimum wage lowers the economy

Opinion: Columns

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By Jim Bowman

Writer

Ask a tax-and-spender, usually a Democrat, how much tax is too much, and he will hem and haw. Ask how high a minimum wage should be, and he will react the same way. The answer he is groping for, of course, is whatever the traffic will bear. The market, that is. He will put his finger to the wind and decide what will sell. He's in the business of getting elected, after all.

Congressman Danny Davis (D-7th) said he did not care how much ObamaCare would cost. That was when it was still in the legislative hopper. He still doesn't care.

Rep. LaShawn Ford recently said in an e-blast that it's better to meet the (immediate) needs of his constituents than pay down the state's debts. The debts to vendors are past $4 billion by now, per the ratings company Fitch, and climbing.

It's always two things with tax-and-spenders: meet the immediate pressing need and put off the big problems.

Take the minimum wage, which satisfies for the moment a certain quantity of low-income earners — those with jobs — but penalizes many others who can't find jobs. 

"Raising the minimum wage is a formula for causing unemployment among the least-skilled members of society," said Pepperdine U. economist George Reisman in an April 4 open letter to Secretary of Labor Thomas Perez.

It works this way: "The higher wages are, the higher costs of production are," Reisman wrote. "The higher costs of production are, the higher prices are. The higher prices are, the smaller are the quantities of goods and services demanded and the number of workers employed in producing them."

These are all "propositions of elementary economics" that government officials should know, says Reisman, author of  Capitalism: A Treatise on Economics (Jameson Books, 1996; Kindle Edition, 2012).

Those who keep their jobs profit from the "government-created monopoly" that eliminates competition from those who can and will work for less. They are propped up by government.

Whence comes the money for this propping up? From "reduced expenditures … elsewhere in the economic system, which must result in more unemployment," says Reisman.

It's a mug's game, he's saying. You muck about with the competitive system without considering consequences baked into the situation, indeed into human nature.

The market price is the fair price, argued the Salamanca Dominicans and Jesuits of late 16th- and early 17th-century Spain, when the free market was taking off as a wealth-producer theretofore unheard of.

All that rises will converge, as the better-skilled displace the lesser-skilled, with the result of "still more unemployment among the least-skilled."

Not to mention the spiral effect, as this minimum wage paves the way to very bad unintentional consequences, says Reisman.

"The unemployment directly and indirectly caused by raising the minimum wage will require additional government welfare spending and thus higher taxes and/or greater budget deficits to finance it."

That sounds familiar, doesn't it? Moreover, it's terribly unfair, being "fundamentally anti-labor and anti-poor people" and benefiting those enjoying "the status of government-protected monopolists," even as it "impoverishes the rest of the economic system."

This fellow is trashing the Social Democrat position on the matter — a new name for the Democrat party? — not to mention that of Democratic Socialists, for whom this sort of thing is mother's milk indeed.

Contact:
Email: jimbowman7@aol.com Twitter: @BlitheSp

Reader Comments

26 Comments - Add Your Comment

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OP Transplant  

Posted: June 2nd, 2014 2:46 PM

Stephen and Gail-I don't disagree with what Stephen says. But, in reality, employers are unlikely just to eat the losses that come from being required to pay their least-skilled employees more. They'll hire fewer people and/or raise the cost of their product. Both of these easily predicted outcomes hurt the very people a minimum wage hike is supposed to help. Is fewer, but better, jobs and higher prices really the desired outcome?

Gail Moran from Oak Park, Illinois  

Posted: June 2nd, 2014 2:33 PM

Well said, Stephen Miller.

Uncommon Sense  

Posted: June 2nd, 2014 10:55 AM

@ OP Transplant, you already see this happening as more and more places are experimenting with using tablets, smartphones, etc in place of cashiers. Instead of having 7 or 8 cashiers making minimum wage, you are going to get one or two making $15/hr and the others will be replaced with technology. Great for those that keep their jobs, sucks for the ones let go.

OP Transplant  

Posted: June 2nd, 2014 9:59 AM

If the government requires employers to pay workers at a rate that exceeds their contribution to the company, US jobs will, without question, be lost to consolidation, outsourcing, and automation. The least skilled workers will take the biggest hit, just as they'll take the biggest hit when prices for most goods and services go up. Those who make the cut will benefit; those who don't will really be screwed. Most OPers probably won't notice much either way.

Uncommon Sense  

Posted: June 2nd, 2014 9:37 AM

@Stephen, on the flip side, if raising the minimum wage is such a solution to poverty, why not raise it to $20, $50, or whatever figure per hour?Progressives start dancing around the question because to answer it is to destroy the argument for even having a minimum wage.

Stephen Miller from Oak Park, Illinois  

Posted: May 31st, 2014 11:57 AM

To paraphrase, ask a conservative, usually a Republican, how low a minimum wage should be, and he will hem and haw. Jim, if this were Econ 101, I would mostly agree with your post. But not in the real world. Your minimum wage argument rests on the premise that labor and capital exist in an otherwise free market, and minimum wage requirements are the anomalous distortion of that market's equilibrium. How utterly false that premise is. Capital comes the market with a stiff breeze in its sails: think of the trillions of government dollars provided to owners of capital through tax breaks, the 2008-09 bailouts, government incentives of all kinds. Heck, as we speak, our beloved village is entertaining a $1.5MM capital boost to Pete's Markets. Labor is pitted against all of that in this supposedly free market. Not that workers don't get their own goodies from time to time. But to single out the minimum wage as a uniquely unacceptable intrusion into the markets is indefensible.

Tom from Oak Park from Oak Park  

Posted: May 29th, 2014 7:51 PM

Why anyone in the the government feels it is their job to set wages in the private secotor is amazing. Butt out!

francis  

Posted: May 29th, 2014 4:56 PM

@Uncommon Sense - I will state unequivocally that liberals want people to get jobs in energy production.

Uncommon Sense  

Posted: May 29th, 2014 2:28 PM

You know what pays more than minimum wage? Energy jobs, particularly in oil. Yet, liberals don't want people to get those jobs.

francis  

Posted: May 29th, 2014 1:40 PM

The competitive system as it currently exists has created an unsustainable imbalance in the distribution of wealth. "Mucking" with it would likely be to the great advantage of most Americans. http://youtu.be/QPKKQnijnsM

francis  

Posted: May 29th, 2014 1:27 PM

Economics 201 - The Most Rigorous Research Shows Minimum Wage Increases Do Not Reduce Employment _- http://www.raisetheminimumwage.com/pages/job-loss

Head vs. heart  

Posted: May 29th, 2014 1:15 PM

Mr. Middle, I am not saying that it's good public policy per se. I'm saying that is why opponents are losing the argument. And they'd do better to address that aspect. More than anything, I think there is a general feeling that it should be illegal to pay someone such low amounts. Whether or not there is a benefit to raising the min wage, $8.25 strikes people as wrong in a very basic way. Would they like their grandma or daughter working for that? That's what critics are up against.

Mr. Middle  

Posted: May 29th, 2014 12:59 PM

@ Head V Heart. Feeling something is true is not the way to build public policy. The larger question is who is being exploited? The person who works at Time-Warner that based upon their labor they generate $260,000 in profit or the line cook that his labor generates $2000 in profit? The Line cook made $20,000 and I am sure we can all agree that few at TW make $260K. So the line cook made more from his labor then the restaurant owner. That does not seem to be exploiting.

Uncommon Sense  

Posted: May 29th, 2014 12:02 PM

The other problem with raising the minimum wage is that it is going to cause all other wages to go up as well. The employees who are already making $15/hr will see their wages increase by a commensurate amount. This is why unions are so in favor of the min. wage increases. Their contracts are often tied to a certain amount above the minimum wage.

OP Res 253 from Oak Park, Illinois  

Posted: May 29th, 2014 11:44 AM

It really is econ 101, raising the minimum wage reduces labor demand. The CBO itself pointed to the fact that 75% of minimum wage earners are not supporting households. They are often young, generally unskilled, AND the most vulnerable to layoffs caused by this bad policy. Thereby never acquiring skills and earning more. There are a myriad of tax transfers in place for families below the poverty line that offer assistance to those that can't without firing those that could given a chance.

Head vs heart  

Posted: May 29th, 2014 11:34 AM

Economists tend to be pretty mixed on whether the outcomes are good or bad. But I think the reason two-thirds of voters favor raising the minimum wage is that it's primarily an ethical issue for most people. There's definitely a vocal minority making the case against, but I'm not sure any argument can overcome the basic gut feeling that workers deserve more. Or at least that anybody making that little now is being unfairly exploited. That's winning the argument more than anything.

Uncommon Sense  

Posted: May 29th, 2014 11:15 AM

Teen unemployment rises along with minimum wage increases. Wages are a direct function of supply & demand. Unfortunately, if you have few skills and easily replaceable, your wage is going to reflect that fact. Artificially raising wages may help the few fortunate enough to get a job, but hurts those who wind up with their jobs eliminated. Prices will also rise across the board, not just at the lowest levels.

OP Transplant  

Posted: May 29th, 2014 10:55 AM

Years ago, my sister had a high-school job at a movie theater. She worked the concession stand for minimum wage. Minimum wage went up, and she and the other most recently hired kid got fired. No big deal when it's a part-time job for a high school kid, but catastrophic to some workers. It's much easier to fire people than to raise prices.

Mr. Middle  

Posted: May 29th, 2014 8:35 AM

cont..them, spend more and since service staff is much less they make more money. Another concept that is grabbing hold of smart economists are profits per employee. Apple makes $460K per employee and a full service restaurant around $2000. Who employee minimum wage workers? BTW..Time/Warner made $260K per and that evil Walmart made $13,000. Maybe Iphones and movies cost to much? Oh I forgot...Apple and Time support a higher minimum wage. Hypocrisy everywhere.

Mr. Middle  

Posted: May 29th, 2014 8:20 AM

So back in the real world of restaurants there is a big shift in technology happening. As wages and employee expenses (AHA) go up we look for efficiency to stay competitive. If you have been to Las Vegas recently and went to a club you where probably able to download an app and buy your drinks. Your phone buzzes and flashes and you hold it up for your drinks to arrive. Chillis and Applebess have been quietly testing table-top IPADS to order and pay with. To their surprise guests love them..

muntz  

Posted: May 28th, 2014 10:28 PM

Would raising the minimum wage eliminate or reduce the need for govt assistance? Wouldn't that be a good thing? I would imagine rent subsidies and SNAP benefits would decrease by some amount. If so, would there be an unintended incentive to work less hours to keep your govt benefits? Any chance either side of this argument can show the honest math here? Assume 2 person household (mom/child) working 40 hrs/wk at min wage vs $15/hr. Show govt benefits before and after. Can both sides benefit?

Uncommon Sense  

Posted: May 28th, 2014 10:23 PM

Numbers also missed the part in Econ 101 about inflation. So even though these employees would be making more money, everything is going to cost more so they are just going to be back at square one complaining about making minimum wage again.

Unfortunately  

Posted: May 28th, 2014 8:39 PM

@Numbers. Do you also realize that "numerous studies" regarding raising the min wage - especially as high as $15 an hr - would destroy a lot of existing jobs? I'd like to once, just once, see those advocating OTHERS to raise wages and in favor of union activism, etc......would simply open up their own businesses and then pay their union employees whatever they demanded. Heck, why don't the unions leaders open up such businesses (utilizing pension funds) and do this? Or are they just leeches?

John Butch Murtagh from Oak Park, Illinois  

Posted: May 28th, 2014 4:15 PM

Bowman's piece reminds me of my high school days when life was filled with overdue homework essays and a great fear of physical punishment from my Irish Christian Brothers -- part time teachers and full time bullies. My academic solution was to go to the library and collect quotations that had some level of relevance to the essay subject. Using two thirds quotes and one third my clever connect words created a 500 or 1000 word essay that had no premise or conclusion, would not be read by any teacher, and would result in very satisfying C or C-..The Bowman essay reminds me of the corrupt essays of my youth. Jim, reading your economic manifesto brought back great memories..

Numbers  

Posted: May 28th, 2014 3:02 PM

What the cited economist fails to recognize is that the people making more money spend more money. Numerous studies on Walmart employees have shown that prices on items would minimally rise (less than ten cents on bigger items), a normal happening anyway, and people would be paid a living wage. They would turn around and put this money back into circulation since most minimum wage earners save very little.

Brian from Oak Park  

Posted: May 28th, 2014 11:33 AM

Nicely written Jim. Well documented piece.

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