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Thursday, January 04, 2007

Minimum Impact

George Will has an excellent column today about the problems with the minimum wage, and why raising it's a bad idea, and having one is a worse idea.

Most people disagree with the idea of no minimum wage, for the reason it was instituted in the first place, businesses will take advantage of those who need work by paying too little for their services. Of course, just looking at current wage data shows that to be false, only about 1.9% of the workforce earns the minimum wage, meaning that by and large business is paying more for labor than required by law.

In yesterday's Washington Post, there was another article on the same issue, though looking at the minimum wage hikes in various states and how it affects the businesses that have to pay it. More correctly, how it's going to affect the employees who get the government mandated raise.

What it points out (as I did after the election) is that the employees who are supposed to benefit from the raise probably won't. Instead, to keep costs down, the employers will shorten work hours as much as they can for many people. Smaller businesses employees will be affected more than larger one's who have more wiggle room to cut other costs.

Going back to Will's column, he points out a lot of the truth in the minimum wage that we don't hear from feel good legislators who need to prove their compassion for the little guy. Things like 60% of the folks earning minimum wage are in households earning $40,000 or more per year, and only 1 in 5 minimum wage earns lives in a house below the poverty line.

This month, and in July, a number of states are raising their minimums, 70% of the workforce already is in a state with a minimum wage higher than the federally mandated one. In December it will be interesting to look at the unemployment rate in those states, especially for younger workers. My guess is history will repeat itself, and we'll see a sharp jump in that number. Generally a 10% raise in the minimum wage gets you a 5% increase in the number of unemployed who were formerly receiving that wage. How much is the increase helping them?

Illinois, and a few other states want to take the minimum wage one step further, and index it to inflation, guaranteeing an annual raise to those earning that amount. Another feel good thing that will instead be a disaster if implemented, especially for counties that are near state lines.

While Wisconsin is a tax hell, if a small retailer can open in a state where the labor costs is 10-15% less, it makes up for the tax issues, and suddenly business finds a reason to move north, or west to Iowa, or East to Indiana.

Like anything else, labor is something governnment probably should stay out of. We've proven with steel tariffs that while intervention might help a few of the intended recipients, the unintended consequences are generally more severe than the original problem.

30,000 steel workers had their jobs protected by the tariffs, while 225,000 in the ancillary industries ended up in the unemployment line. A minimum wage hike, especially one that happens every year will have the same effect on businesses over time. Low wage jobs will move out of states, and they won't be able to figure out why.

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Blogger shoprat said...

Constantly raising minimum wage was one of the causes of the infamous Carter Economy of the late 70s and early 80s. I don't want a repeat of that nightmare.

5:17 PM  

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