Dangers of a Minimum Wage Exposed
Article from Reason by Veronique de Rugy.
We have a saying in France that goes something like this: With enough “ifs,” we could put Paris in a bottle. In other words, if you assume away all the difficulties of the real world, you can achieve miracles. This proverb was all I could think about when reading Ginia Bellafante’s recent column in The New York Times about making the case for a $33 minimum wage in the Big Apple.
While in her estimation, the $15 minimum wage that went into effect in NYC on Jan. 1 is a step in the right direction, she argues that it’s not enough if the goal is to enable a single parent with two school-age children there to meet his or her expenses. With that objective in mind, $33 an hour is necessary.
Many economic studies confirm the fact that while some employees will benefit from the mandated wage increase, many won’t. Businesses respond predictably to price changes, including changes in the price of labor. They may not all respond with equal speed or magnitude, but over time you could expect a reaction to mandated higher wages. Some employees will lose their jobs to automation, while others will see their full-time job transformed into a part-time or temporary job. In spite of Bellafante’s wishful thinking, this economic reality won’t be suspended in the real world, especially if the minimum wage were suddenly more than double overnight.
It’s important to understand that these distortions are the byproduct of government intervening to raise wages. The fact that mandated minimum wages are bad for some workers who will lose their jobs as a result doesn’t mean that all wage increases are bad. In fact, when wages go up naturally as a result of economic growth, improved productivity, and more competition between firms for workers, wage hikes don’t come at the expense of other workers. That’s why we can expect a sustained rise in wages resulting from a decrease in the corporate income tax rate—a tax cut that increases capital investment and productivity, and then wages. How much they will grow over time is an empirical question.
Read the entire article at Reason.
Image Credit: By Fibonacci Blue from Minnesota, USA [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons