Today, Jessie Jackson Jr announced a plan to increase the national minimum wage from $7.25/hr to $10.00/hr. The New York Times (no link for the 'Fish Wrap of Record') says that "The argument in favor of raising the minimum wage as a form of economic stimulus goes to the heart of the debate in government and business spheres about whether more spending needs to be part of the prescription for strengthening the economy."
This idea is based on four false premises, and I think they deserve a little bit of attention.
False Premise 1: The "Income Gap" is, by definition, bad.
Thomas Sowell Debunks this quite handily. For one thing, as he points out repeatedly, when we talk about income levels, we're ignoring the fact that the vast majority of people move through those brackets, both up and down, over the course of their lifetimes. Someone making $15,000/yr this year might be making 30, or 60, or even 90+ thousand dollars a year in just two or three years' time. Someone making $250,000/yr this year might be down to the high double digits of thousands the very next year. This volatility is especially true at the top and bottom ends of the spectrum.
Further, if "income inequality" is bad, that would require that it's opposite- "income equality" was both good and possible. We have no evidence for the former, and we know that it isn't possible. There will be some people who make more than others, often by a very large margin. Even in supposedly "equal" Soviet Russia the Party Officers made far more money than the average citizen. There were those who provided much needed material who were able to leverage that into very high incomes- and this in a Communist State.
False Premise 2: Higher Wages are good for low wage workers.
Again, Thomas Sowell debunks this. The Minimum Wage, he points out, isn't really. The actual minimum wage is always zero; you could just not have a job. What the Federal Minimum Wage really does is prices young and inexperienced workers out of the job market. Why higher a high school kid for $10.00/hr when I can get a college graduate for the same amount?
Just as importantly, an increase in the Federal Minimum Wage leads to inflation: as more people are able to afford to pay more for goods and services, not to mention the cost of providing those same goods and services going up, things begin to cost more. When that happens, the people it hurts most are the ones who are still at the low end of the spectrum. The middle class can tighten their belts, drop the cable, and survive. The Rich may not even have to do that. It is the poor who are most adversely affected by the "invisible tax" that is inflation.
False Premise 3: Low Wages are the "fault" of business
Wages, in many ways, are the "price" for an employee. That may be an uncomfortable fact, but it is a fact nonetheless. Because, in many ways, employees are also commodities, they- just like any other "consumable" are subject to the laws of supply and demand and a competitive marketplace. That means employers will pay as little as they can get away with, while employees will ask for as much as they can (at least: in theory- the real world is often more complicated than theory- but it certainly isn't less complicated, which Minimum Wage laws assume). When you put any kind of "price control" on a commodity (in this case, a Minimum Wage on workers), you interfere with the market place. Such interference almost always has severe negative results.
Further, Businesses hire based on need. When they need a new employee, they'll hire one. When prices are higher, they will put off hiring employees for longer, and will higher fewer than they would when prices are lower. In many cases, businesses will put off growth rather than hire new personnel when the economy is bad enough- and Minimum Wage laws only add to that.
False Premise 4: The Minimum Wage should be a "Living Wage."
I'm not sure when this got started, but it's laughable on its face. The people who will be making minimum wage for more than a year or so are students. Particularly, they are high school students who are not paying their own way. Heck, my first job (at a pizza place in semi-rural Texas) paid slightly over minimum wage. Very few people actually make the minimum, and the ones who do are in jobs that are not designed to support a family. People with families, or even without families but who need to be supporting themselves, will almost always be in jobs that provide for them.
What a Minimum Wage actually does is to increase what is required for a "living wage" by increasing demand, thereby increasing inflation, and thereby reducing the spending power of the dollar. In short, a Minimum Wage actually makes everyone poorer. That professional who was making $60,000/yr can now afford less than they could before the minimum wage had gone up. The ripples are so far reaching that it almost defies cataloging.
I'm under no illusion that the Federal Minimum Wage will be repealed (it should be), but to increase it again, especially under the demagogic auspices of "income equality" or "fairness" would be disastrous- especially in our already very frail and fragile economy.
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