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Barring good sense, minimum wage hike set to hurt LA

The issue of raising the national minimum wage shows again why Gov. Kathleen Blanco hasn’t a clue as far as the right policy for Louisiana, and any increase in it bodes ill for the state.

Competing bills are wending their ways through Congress that would boost it, although an effort exists to introduce tax breaks with it to try to mitigate its negative impact. There’s nothing good about raising it because it coercively takes resources from more productive users of them and transfers them to less productive users – meaning except for the small portion of the population that gets paid at that rate, the majority of whom are employed part-time and/or are not heads of households, all of society is worse off by its implementation.

Simply understood, the marketplace rewards people in proportion to their contributions to society. If a job without government mandate pays less than a minimum wage, it’s because the true value of that job to society is below that level. Not only do minimum wage laws create inefficient use of resources because of that transfer, but they also produce a ripple effect for wages near that level through upward wage pressure produced by the increase, overpricing additional wages.

All of this goes over Blanco’s head. Not only does she support these increases, she’s put our money where her mouth is by backing a statewide minimum wage increase last year, and when that failed she pushed through an increased the minimum wage paid to state workers.

That harmed Louisiana because it put upward pressure on private sector wages which is the last thing a state badly in search of economic development needs, discouraging business because of wages disproportionate to their actual value. But this federal increase potentially could wreak havoc to the state’s economy, given its much larger scope.

There’s the possibility it might not, if the dots are connected properly in Washington. The version of the bill that promotes tax breaks, if done right, could offset the unjustified wealth transfer for businesses, in essence making the increase come out of the government’s pocket. As long as there are concomitant decreases in welfare programs designed to assist low wage earners to make up for this, the effects might be minimized. Louisiana better hope that’s the kind of bill that ends up passing.

Still, Blanco’s approval of an increase without tax breaks and her past actions again show how little understanding she has of what is best for Louisiana.

1 comment:

Anonymous said...

What about the economics of changing the wage differential has on the recovery from Katrina? If the minimum (or what New Orleans has to pay to attract workers) wage in New Orleans is say $8/hour and it is $5.25 in Houston, that should help in bringing people back to New Orleans. Artificially narrowing the difference either means less incentive to come back or local businesses must increase wage to keep the different the same. I think that local businesses have been very good about absorbing their increased cost, probably because they view it as short term and their contribution to the recovery effort. Having to pay $2 or $3 more per hour will either drive up prices or cause businesses to close. Raising the state or national minimum wage is probably not going to be a good thing for New Orleans.