Wages Are Like Love
19th March 2014
All this talk about raising the minimum wage has very little to do with reality. Raising it will not create a single job—if you aren’t earning a wage, making yourself more expensive is not going gain you a job—and will not likely cause anyone’s wages to rise. It’s hard to find anyone who is actually willing to contradict those claims, because they stem from basic price theory: Less of the same good will be purchased at a higher price than a lower price.
The timing is also incredibly bad. Business is already dealing with huge cost increases because of Obamacare. Many businesses are in full protest mode. Plus, employment markets are soft.
Economic growth in general is under downward pressure, with even past growth rates being revised downward. Economic growth is so pathetic now that Janet Yellen, the new head of the Fed, took a page from the Soviet playbook and suggested the bad weather itself is what is to blame—a line still used by Zimbabwe to explain its perpetual woes. It’s a heck of a time to force higher wages on businesses.
‘Hey, we’ll just pass a law! That will make everything better!’ Yeah, right.
What the editorial suggests is that higher wages need to be forced on business because otherwise managers would not understand their own interests. Businesses makes thousands of decisions every week regarding inventory, real estate, websites, accounting, product development, marketing, research and development, and vastly more, but, according to the minimum wage idea, they are clueless about how to manage the wages and salaries of their own workforce with an eye to profit maximization. For this, businesses need government to tell them what to do.
Do you see the presumption here? It is that the Department of Labor—not a profit-making firm but one run by people whose wages and salaries are dictated by law rather than markets—is in a better position than the private sector to know what the market demands. That’s implausible on the face of it, unless you fundamentally believe that markets are dumber than governments and that the price system is nonfunctioning.
That lack of basic economic understanding is only the beginning of the frustrations that economists have when looking at these debates. The urge to boost the minimum wage is driven not by economic considerations but political ones. It is a favor thrown toward unions and large corporations—institutions that already enjoy or pay high wages—at the expense of smaller companies or unemployed/marginal workers who have a hard time gaining any kind of foothold in the market.