Friday, January 26, 2007

Minimum Wage Laws Illustrate Dumb Democrats' Ideas

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Most minimum wage workers are not even fully supporting themselves

Demonstrating the economic inadequacies of its editorial staff, the January 22, 2007 edition of Newsweek had a really dumb quote on its “Perspectives” page. Actually, the quote probably became dumb only after Newsweek tweaked it to get their message across that America needs a big raise in the minimum wage. The restaurant owner credited with the statement probably meant that if he only offered the Idaho minimum wage, he wouldn’t get any applicants.

The quote was a statement by Idaho restaurant owner Rob Elder, who said, “At $5.15 an hour, I get zero applicants – or maybe a guy with one leg who wouldn’t pass a drug test.” His comment was to illustrate the difficulties of finding good workers with Idaho’s low minimum wage, compared to nearby Washington State’s $7.93 an hour, the highest in the nation.

If Mr. Elder understood the simple Laws of Supply and Demand, he could hire all the workers he wants by just offering to pay them what their labor is worth to him, as long as it is more than $5.15 an hour. If the work he wants them to do is not worth $5.15 plus benefits or more an hour, Mr. Elder’s options are to reorganize his business to get by with a different number and possibly a different type of employee (part-time, subsidized, disabled, etc.), and/or have illegal employees and pay them less.

Obviously Mr. Elder would like to hire legal workers for his restaurant at $5.15 an hour, and if the Laws of Supply and Demand for restaurant employees in his area were not distorted by minimum wage legislation , he possibly could. However, neighboring Washington has established the going rate for such labor at $7.93 an hour. Why work in Idaho at $5.15 when you can work in Washington at $2.78 an hour more?

Smart Idaho employers understand the labor market they’re in, and offer prospective minimum-wage type employees something above $5.15 but lower than $7.93.

How can they get by paying Idaho workers less than the nearby Washington minimum wage? Several reasons. One reason, at $7.93 an hour, Washington is attracting more people looking for work at that wage (some of them from nearby Idaho) than Washington businesses are willing to hire. Some of them, especially those living in Idaho, would accept a lower wage to work in Idaho closer to home compared to driving to Washington to join the surplus of unemployed job applicants there.

Plus some of the unemployed in Washington would rather have a lower paying job in Idaho than no job at all.

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The minimum wage - Much Ado About Nothing

As with all government regulation, minimum wage laws have serious unintended consequences.

Many willing young workers are not hired into “starter” jobs because the return on their labor doesn’t justify their costs as unskilled, untrained, unreliable, undisciplined, inexperienced workers. Minimum wage employment is not meant to support heads of families, or to provide lifelong occupations. Minimum wage jobs are to start young people out in the working world, usually while they are single, still going to school, and living at home.

Minimum wage laws discourage hiring legal workers, and encourage hiring illegal aliens. The illegals work for less, administrative costs are less because income and social security taxes are not withheld, and the employers don’t pay the employers’ contributions to Social Security, workers compensation insurance, or other regulatory costs of using legal employees.

Minimum wage laws discourage hiring the young, inexperienced workers who need starter jobs to learn good work habits and job skills, and to help their transition from school and home into the working environment.

Minimum wage laws hurt the employment of the young, minorities, and the poor.

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Youth, and particularly black youth unemployment, went up sharply and steadily since minimum wage laws were expanded beginning in the mid-1950's, killing teen-age jobs

The unions will love the following unintended consequences of minimum wage laws, because they add to the accelerating reduction in the number of unionized employees and to the loss of unions’ political clout. Minimum wage laws inspire employers to outsource jobs, replace human labor with machines, substitute part-time employees for full-time, and to contract out more work.

The unions are already losing their grip on their only wholly owned subsidiary, the Democratic Party. When the unions lose mandatory collection of dues for political contributions, even the Democrats will stop taking their calls.

Please click on the label below to see all my articles on this topic.

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