Minimum wage increases will hurt the poor. The better solution is to create a superior climate for businesses, strengthen the dollar, and emphasize a career-oriented approach to education.
Cross Posted from www.RickardsReview.com
New Jersey’s lowest paid employees received the fruits of a false victory this past Wednesday, as the state raised its minimum wage from $7.25 per hour to $8.25 per hour in accordance with a public ballot question that was overwhelmingly approved this past November. Additionally, the law requires annual increases tied to inflation, so even if the business climate continues to worsen, and profits continue to fall, the cost of labor will continue to rise.
There was never any doubt that the law would pass, and would do so overwhelmingly. After all, we are a nation of hypocrites. Very few of us are willing to pay more for a good or service if it will mean the employees of that business will get paid more. As a general rule, consumers buy the best product for the best price, and more often than not the company with the best price has the lowest expenses. So when we participate in the market we tell companies to keep expenses low in order to keep prices low, but when we vote we tell politicians to raise them, because, after all, this seems to us to be compassionate, and, in any event, it is paid for by somebody else, so nobody stops to consider the consequences.
But the consequences should be self-evident: raising the cost of labor will result in less labor being purchased (meaning that more people will be unemployed), and raising costs on businesses will make it harder to do business.
One of the foundational principles of economics holds that setting a minimum price for a good or service above market value creates a surplus of that good or service, because people do not want to pay more for something than it is worth (as opposed to setting a price control below market value which creates a shortage; think, for example, of the Nixon-Ford-Carter price controls on gas in the 1970’s, and the resulting gas lines). And while a surplus might sound like a good thing, in the employment context a surplus of labor means, literally, more workers without jobs.
Beyond that, there are collateral consequences. Not only will raising the cost of labor result in less labor being purchased (at least, from within New Jersey), it will result in lower profit margins that will make it harder for businesses to find investors and lenders, meaning fewer businesses will start, and those already inexistence will be less able to expand and hire more people. So more businesses will struggle, and businesses already struggling will fail. Businesses will try to pass these new costs onto consumers (which means it would effectively be a tax on the rest of us), but who has the money these days to absorb higher costs without reducing consumption?
In other words, to favor an increase in the minimum wage as liberals do is to cold-heartedly favor there being more people out of work and unable to afford the basic necessities of life, like food, clothing, healthcare, and housing. More people will be sick, more will die, and more will lead miserable lives. This, to liberals, is compassion.
But liberalism, being a false religion, is wilfully ignorant of the consequences of its policies, and blissfully immune to common sense and scientific argument. Defenders of the law, in the face of all logic, claim that raising the minimum wage, even in a time of economic downturn, will not have any impact on hiring, or at least, any “discernible” or “measureable” impact. Note the qualifiers. Of course, it may well be true that given the myriad costs and other variables that factor into profit and loss, it will be difficult, if not impossible to isolate and measure with precision the impact of the increased cost of labor as a contributing factor to people losing their jobs, or, even more difficult to measure, a job not being created in the first place. But the idea that increasing a cost of something will not result in less of it being purchased is outright silly, and plainly at variance with economic science.
Then again, one wonders whether liberals even believe their own analysis (if it can even be called an “analysis”), or if they just advance one because they have to. When liberals talk about the minimum wage the analysis tends to be an afterthought and defensive. Their real impetus is a combination of knee-jerk anti-business bias, and a self-righteous and vague concept of “social justice,” as though it’s somehow an injustice for two parties to voluntarily agree to a price that both acknowledge is reflective of value. But to a liberal, “value” has nothing to do with the amount of worth that an employee adds to a business. It’s more of a subjective determination of what it would cost to maintain what they believe should be a given employee’s standard of living. This produces the bizarre result that two employees performing the same task just as well could arguably be said to have different values, if, for example, one has more children than the other, or lives in a more expensive area, thereby necessitating a higher wage to maintain an equal standard of living.
And what of the workers who lose their jobs? Strangely, even the liberals who entertain that certainty as a possibility do not seem bothered by the prospect. This is at least in part because unemployment doesn’t bother liberals, as they’re just as happy to have people collecting welfare, which makes people more dependent on government, thereby expanding its role and control over our economy and lives, thereby making government more expensive in the process, and thereby necessitating redistributive policies away from the evil rich to the government, under the guise of helping the poor. This, of course, is the result that basically all liberal policies aim to achieve.
Plus, the more people are dependent on big government, the more likely they are to vote for the party of big government, so in a perverse way Democrats win by increasing the number of poor, because the poor are the Democrat base. Liberals love the poor. That’s why they create so many of them.
Of course, if liberals really cared about the poor, they’d stop talking about raising the minimum wage, and start talking about raising people out of the minimum wage.
Instead of redistributing wealth, which liberals believe to be panacea to everything and which achieves nothing other than to stifle economic growth, we should be addressing the three primary causes of the problem of low wages. First, the shortage of jobs and resulting surplus of labor means that labor is not in high demand. When any good or service is not in high demand its price decreases. This trend will continue as the minimum wage causes the surplus of labor to grow. This is clearly counterproductive. Instead of burdening businesses with new costs and regulations and taxes, we should be liberating businesses so as to encourage investment and expansion. This will cause businesses to have to compete with one another for new workers, and this increase in demand will result in a concomitant increase in the price labor can charge; i.e., higher wages.
Secondly, we need to strengthen the dollar. The money people earn would have a lot more buying power if our government would stop using the printing press to intentionally inflate our currency, thereby surreptitiously taxing away our wealth, a policy that basically works as a regressive tax and most painfully hurts the poorest among us who can least afford it. Over the last century the dollar has lost 95% of its value. Seven dollars an hour may not seem like much now, but in 1980 it was the equivalent of roughly twenty dollars. So, the problem is not so much the wages, but what the wages can buy. Yet, President Obama, like all of his predecessors in recent memory, continues to espouse inflationary policies (“quantitative easing”) supposedly to help the economy, but really to tax the populace surreptitiously, and which ultimately cause more people to struggle to make ends meet.
This needs to stop. Don’t blame businesses for not paying enough when it’s the government that intentionally destroys the value of what workers get paid.
Third, we need to address the uncomfortable truth that more and more Americans simply have no marketable job skills. And here both conservatives and liberals would benefit from some introspection. Conservatives in particular should worry less about illegal immigrants taking away minimum wage jobs, and worry more about why so many Americans are qualified only for minimum wage jobs. Liberals, for their part, should stop complaining about how much more skilled workers make, and instead aim to make more skilled workers.
A large part of the problem is our educational system. It is not uncommon for an urban school district to see half of its student body drop out before graduation, and those who do graduate unable to pass basic proficiency tests. Even in the supposedly superior suburban schools, students are taught no marketable skills (vocational/technical training having become stigmatized as ignoble and degrading), and as such have nothing of value to offer an employer. Even those who graduate capable of doing college-level work (in the entire city of Camden this year, there were exactly three such students; or roughly one student for every $120 million that city spends on pre-collegiate “education” annually), find it harder to enter college and complete their degree due to oppressive and exploitive tuitions.
Those who do graduate from college soon discover that after all that time and money spent, they are no closer to having developed any marketable job skills than when they matriculated four, or five, or however many years previous, and that employers consider their degrees in philosophy, or cultural anthropology, or art history, or twentieth century existentialism, or general studies, etcetera, to be basically worthless outside of the isolated borders of the American college campus.
On top of that, another regrettable consequence of our poor educational system, increasingly limited access to college, and lack of emphasis on job skills, is that more young adults are foregoing education in favor of accruing criminal records. This is most evident and pronounced in urban areas where, arguably, job creation is most needed, and it makes these young Americans basically unemployable in a business climate where a surplus of workers compete for a shortage of jobs.
Though a comprehensive solution to our educational problems would be beyond the scope of this essay, two basic principles should be acknowledged: First, that one-size-fits-all public education fits nobody, as it does not provide the competitive environments, and variety of specializations, that would occur if we were to empower consumers (parents) with the right of school choice in the form of vouchers. Secondly, the college experience needs to become less about promiscuity, heavy substance abuse, and protesting whatever anti-corporate cause celebre happens to be fashionable at that moment (as of this writing, the enemy du jour is plastic water bottles), and more about improving one’s self in a meaningful, career-oriented manner. With the cost of college rivaling that of mortgages, and jobs ever harder to find, students literally can no longer afford to be frivolous.
In sum, we need to solve the problem, not raise costs on businesses and then just hope, against all evidence, that everything somehow works out. As with most liberal policies, raising the minimum wage is lose-lose for everyone involved, and so is this idea that business and labor must be at odds with one another. Businesses need labor, and labor needs businesses just as much, so to impose additional costs on businesses is ultimately to impose additional costs on the labor and consumer market. In this case, the people hurt the most will be the poor minimum wage workers who the program is supposedly designed to help, most of whom will find themselves worse off, and ever more dependent on big government.
But that’s socialism for you: punishing those perceived to be rich in order to oppress the poor.