Feel Good Economics 101

The illogic of the supporters of minimum wage increases never fails to surprise. Consider the puff piece in The New York Times comparing the experiences in Washington – which increased the minimum wage to highest in the nation levels – with those of Idaho, which prudently permits (relative) freedom to prevail.

While admitting that prices need to increase to pay for higher wages paid predominantly to teenagers, the result has not been economic devastation. The effect has been the families who wish to dine out pay more so that teenagers can make more.

The reporter notes:

"Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation’s leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy."

No one ever said it would, as the effect of a higher minimum wage upon professionals, financial services, etc., is essentially nil. That is, a higher minimum wage doesn’t hurt the economy if, in a tight labor market, no one actually earns it.

Of course, it contributes to the higher cost of living generally. Pizza’s more expensive. But not such that most people notice.

One business owner, who once criticized the annual hikes (during a recession), now doesn’t care.
"If you look 10 years down the road, we will probably have no minimum wage jobs on this side of the border, and lots of higher-income jobs."

Translation: in a tight labor market, essentially no one ever makes the minimum wage, because competition for labor drives their wages up.

Or, alternatively, their jobs simply go away. Over time, businesses that can find a way to automate to cut costs by doing so and some positions simply go the way of the dodo, driven into extinction because their value to the enterprise simply doesn’t warrant the expense of the hiring.

Consider the movie Back to the Future. Marty arrives in 1955 and sees a car pull into a service station. Instantly, four employees rush to the car. One cleans the windshield, one pumps the gas, one checks the oil, one checks the tires. Of course, each one of them probably made $.25 an hour. What do you suppose people who fill those jobs make today?

If you answered "nothing", go to the head of the class: those jobs simply don’t exist any more. It became too expensive to provide that service. To the Left, that's probably a Good Thing; better that a job not exist at all than that it pay less than they believe appropriate.

I spent many years working in the fast food industry: Nathan’s, Jack in the Box, McDonald’s, Burger King. Of the hundreds of people with whom I worked, maybe 6 were over 25. At McD’s, during a typical lunch rush, as many as 20 kids manned various stations. Today, the McD’s located in the same mall gets by with about 5. That which was formerly a labor intensive undertaking is now much more mechanized. The people who work there may be better off, but there are 75% fewer jobs.

Minimum wage laws represent the triumph of ideology over evidence. They’re also the epitome of feel good legislation. They benefit the working poor essentially not at all, unless a suburban teen with a gas payment to support counts as "poor". And they indisputably destroy jobs.

By way of example, when NJ passed an increased minimum wage a few years back, the Agriculture Transition Policy Group warned that its effect on NJ agriculture could be devastating. It reported that when the minimum wage last increased, the State taxpayers had to cough up million to subsidize local farmers to keep them afloat economically.

The CBO reported that if all workers making between the old minimum wage and that just passed by the House had, instead, received the higher levy, a mere 15% of the additional wages would have been paid to families earning below the federal poverty level. Conclusion: most of the increased wages are, in fact, paid to relatively middle class teens.

Liberals like to employ governmental mandates to demonstrate how much they care about poor folk. One writer on a blog – why I read this stuff puzzles me – avers that:

"No one who works 40+ hours a week should be hungry, live in squalor, drive a wreck, decided whether to eat or pay the bills, etc."

Nice sentiment. And how is that person well-served if, instead of having a low paying job (flipping burgers), he has no job at all? Or, back to NJ agriculture; how is someone who works hard all day picking veggies at low wages profited if that business closes because its costs are simply too high? Anyone who doesn’t think this happens simply isn’t paying attention.

If the forces of economic illiteracy really believed that minimum wage laws could magically raise the poor from their unfortunate circumstances, they wouldn’t pussyfoot around with a paltry $7.15 per hour. What say you to $10? How about $20? Once one accepts the principle that it’s somehow "immoral" to pay a particular wage – that is, the wage that the position is actually worth – why settle for a wage that keeps people who earn it perpetually poor? Who can live in NJ on $286 per week? Heck, why not mandate that EVERYONE earn $50K? If one rejects the notion that free people should be able to take a job at whatever rate of pay they can command – when one believes that government must "protect" the people from the consequences of their own voluntary decisions – and similarly believes that wages can be increased without consequences throughout the economy, why not go all the way? End poverty tomorrow through governmental fiat!! (The scary thing is that some on the left actually think this would work.)

Will higher pay for low end jobs spell economic ruin? Of course not. In the short run, it will increase prices a bit, which, of course, disproportionately impacts those on the bottom of the economic ladder, but most of us won’t notice much. But, inexorably, as the minimum wage increases, services filled by low wage workers will, increasingly, become mechanized. (How many stores now offer "self check out"? EZ Pass only makes sense when the people taking tolls start costing more than the tolls they take.) Five, ten, fifteen years down the line, many of the services we presently take for granted will no longer exist. Supermarkets once employed people whose sole function was to bag groceries. In the not too distant future, us old codgers will regale our grandkids with tales of the good ol’ days when supermarkets actually employed cashiers.