Helping Edwards understand minimum wage folly
Louisiana’s Gov. John Bel Edwards, in an interview with my colleagues at the Baton Rouge Advocate, seemed perplexed about opposing a raise of the minimum wage. “I don't understand the opposition to that,” he said to them. “I don't know that it's principled or that it can be well articulated that in why 2017 someone ought to be working for seven dollars and a quarter an hour.”
That’s OK, I’m here to help. Other than the facts that the minimum wage – especially for the least skilled – costs Americans jobs, encourages illegal aliens to flock to America and drives prices artificially higher, it’s a great idea.
It causes a problem as it sets an arbitrary floor on the price of labor. In a free market without a monopoly on labor, such as caused by unions (or the highly unlikely event of monopsony, such as in days gone by when a town formed around a single employer, which as the nature of the economy has changed monopsonic conditions have become almost extinct in America), voluntary transactions correctly price the value of labor, exchanging remuneration for the value added to society that the labor produces. But if government intervention forces greater payment than the actual worth of the work, the inefficiency of the use of that resource ripples across the economy.
That encourages subversion of the law, where those already hiding from the law (illegal aliens) surface to work for the true price of the labor (below or somewhat above the minimum wage; note that this includes jobs that pay above it, because a minimum wage that prices any job too arbitrarily high then puts upward pressure on wages associated with other jobs within a certain range of the lowest-value job). A minimum wage also encourages the law-abiding version of employing non-legal-resident for jobs whose produce does not rise to its capricious level: outsourcing abroad.
More recently, as a number of jurisdictions that have begun hiking their local minimum wages significantly beyond the already too-high federal level that applies in Louisiana have learned, employers respond by shedding labor, either through automation or by going out of business. That real-world result parallels research into the issue, which notes minimum wage increases cause job losses, particularly at the lowest end of the market.
And not only do these deploy resources in a less-productive manner – shifting capital away to overpay for labor – that slows economic growth, but also this inefficient use causes prices to rise, because labor, an input to production, increases the cost of production. While this distortion hurts everybody, it harms disproportionately the lowest wage earners even though they may benefit from the redirection of resources in the form of higher wages, but especially those thrown out of work because of the wage/cost hike.
Not that those working at minimum wage constitute a significant portion of the workforce, and especially not among families with dependents. Only 4.3 percent of workers receive pay at or below the federal minimum wage, which includes those jobs that pay the $2.13 base wage plus (such as waiters and bartenders, whose wages with tips often are far higher). Of these workers, those under age 25 make up more than half, where the vast majority in this group work to gain entry-level experience or to earn money while in school and who live in households with an average income three times the poverty level. Even among the 25-and-older workers, their households typically earn about twice the poverty level. Among all, roughly two-thirds work part time while only one-sixth – 0.7 percent of the workforce – are sole breadwinners with dependents.
So, Governor, there’s the principled, well-articulated version to help make you understand. Some people work at jobs that pay $7.25 an hour and get overpaid as a result relative to the contribution they make to society. For the vast majority, that kind of work serves as a first step to acquiring job skills – that they never may receive with an increase in the minimum wage that costs jobs – or as adjunct income for a household. For those few who actually possess so few skills and/or ambition as to never produce work as valuable as what the minimum wage pays, liberal Democrats like you have made sure plenty of government assistance remains available – the modal recipient (parent, two children) of the three major welfare programs (Temporary Assistance for Needy Families, Supplemental Nutrition Assistance Program, and Medicaid) in Louisiana in 2013 collects an equivalent of $5.34 an hour without work.
That’s why $7.25, if anything, is too generous. Now it’s up to you whether to accept the facts or to keep on feigning ignorance.
Posted by Jeff Sadow at 10:40