This article presents compelling evidence that raising the minimum wage is not in the best interests of low-wage workers.
An issue that the very existence of a minimum wage reveals, one that no one seems to talk about is this: Why are so many workers capable only of doing work valued so low? We should be asking why we spend so much on public schools and education, only to have groups of workers with so little skill that their work output is valued so little.
Minimum Wage Price Controls Hurts Kansas
By Karl Peterjohn
The minimum wage is going to rise. That is the consensus from both political parties out of Washington. Raising the minimum wage is at the top of the rather thin 2007 public policy agenda for the new Democratic majority in Congress. The new GOP senate minority leader Mitch McConnell has indicated that senate Republicans will not stop this price control expansion from being enacted.
The federal minimum wage is $5.15 per hour and has been for the last nine years. The new increase is likely to be $7.25 an hour and this could be very bad news in Kansas. Federal labor data indicates that Kansas is one of four states with the highest percentage of the workforce getting paid between $5.15 and $7.25 per hour. Over 10 percent of working Kansans are getting paid $7.25 or less. The other three states over 10 percent are South Carolina, Mississippi, and Louisiana.
Raising the minimum wage to $7.25 won’t have much of an impact in the coastal areas of the U.S. where hour wages already easily exceed these levels. In low income Kansas, the impact is likely to be substantial and highly negative. One senior Kansas legislator discussed this new price control expansion with this pithy comment: “Look for a lot of small town restaurants to close.”
The recent death of Nobel Laureate and free market economist Milton Friedman ties into this return to government expansion of price controls, in this case over labor. “Economists may not know much. But we know one thing very well: how to produce surpluses and shortages. Do you want a surplus? Have the government legislate a minimum price that is above the price that would otherwise prevail,” Friedman said. Numerous examples of the negative results of price controls are cited in his classic “Free To Choose.”
Friedman warned against the negative impact of price controls hurting job hunters. People looking for work will be banned from working at less than the new legally mandated minimum. A surplus of labor in the form of increased unemployment will appear next year.
Since these minimum wage workers are at the lower end of the job scales, they will be disproportionately the under-educated, low-skilled, and least employable workers losing their jobs. This will create a demand for more government spending to aid the newly unemployed.
If raising wages was as simple as having the government wave a wand and pass a law, why stop at $7.25 per hour? How about $1,000 an hour? If government price controls on labor are a good thing, why not? There would be lots of folks willing to work at that wage. However, there would not be many willing employers. Government created labor surpluses in the form or massive unemployment would soar. The economy would collapse.
Everyone knows that setting this type of extreme price control is bad. Why are folks so willing to make this mistake to a smaller degree? Unions benefit since the minimum helps to serve as a floor underneath their contractual efforts. This union tie explains the Democratic Party’s adamant support for expanding this price control. This still harms low income people by destroying their jobs and, with it, opportunity for something better.
Government price controls also weaken the economy by sending incorrect signals, mis-allocating both capital and labor. This hurts the economy by misallocating resources. Price controls remove necessary incentives for efficiency. Economic misallocation occurs when signals from market pricing are replaced with government edicts.
The most pernicious impact of this price control is removing the first step for people entering the labor market. While most folks make a lot more than the minimum wage, these entry level jobs are important to first time workers, low skill level workers, and poorly educated workers. Price controls that destroy the jobs these folks perform are pernicious to society and destructive to individuals striving to get their first step into the job market. A large number of Kansas jobs will be destroyed by a $7.25 minimum wage. Look for more unemployment ahead in 2007.
Why won’t Republican senators filibuster against government mandated job destruction? The only accomplishment for the Democrats during the last two years in the U.S. Senate has been their filibusters. The Democrats won their majority with their filibusters.