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The Minimum Wage Typifies Much That Is Wrong with Washington

April 1, 2013 in Economics

By Doug Bandow

Doug Bandow

President Barack Obama wants to give low-wage Americans a raise. Actually, he doesn’t plan on writing anyone a check. Rather, he wants to force other people to write checks.

It’s a bad idea, no matter how popular.

In his State of the Union speech President Obama argued: “no one who works full-time should have to live in poverty.” He proposed hiking the minimum wage to $9.00 an hour, a 24 percent jump, which “would raise the incomes of millions of working families.” (Other Democrats have advocated $10.10 per hour.)

Raising the minimum wage would be both counterproductive and unfair.”

The president suggested that employers, too, would benefit: “For businesses across the country, it would mean customers with more money in their pockets.” Venture capitalist Nick Hanauer was even more fulsome. He advocated more than doubling the minimum, to $15 per hour, which, he contended, would “stimulate the economy, narrow the gap between rich and poor, and end the ridiculous subsidization of private low-wage companies by taxpayers.”

It would be the ultimate free lunch.

But if government can make the poor rich, enhance consumer demand, boost the economy, and heal the human spirit, why stop at $9 an hour? Why not set the minimum at $90 per hour? Or $900 per hour? The difference between $9 and $900 is one of degree, not kind.

Alas, profit-making companies must earn more than they spend. Workers must produce more than they are paid. As government raises the minimum wage, it prices some employees out of the market. Mark Wilson of Applied Economic Strategies warned in a Cato Institute study: “These behavioral responses usually offset the positive labor market results that policymakers are hoping for.”

The bulk of economic studies—“most of the academic evidence,” as Wilson put it—demonstrate that raising the minimum wage destroys jobs. He explained: “The main finding of economic theory and empirical research over the past 70 years is that minimum wage increases tend to reduce employment.” The only question is how much.

The Department of Labor concluded that the first minimum wage, 25 cents per hour in 1938, cost the jobs of 30,000 to 50,000 of the 300,000 workers who were covered and had previously earned below the minimum. In following years, noted Wilson, “economists began to accumulate statistical evidence on the effects” of minimum wage increases, which found a disproportionate impact on lower-skilled workers.

In 1977 Congress established the Minimum Wage Study …read more
Source: OP-EDS

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