The Looming Minimum Wage Hike: Stuck on Stupid

We might be inclined to laugh off the national demonstrations calling for a $15/hr minimum wage for burger-flippers, as the suggestion should be received as utterly ridiculous in any intelligent economic debate. But the left isn’t laughing.  They’re undoubtedly ecstatic at the media legs such demonstrations have maintained against all odds, and they can’t wait to roll out these downtrodden fast-food workers as a reason to increase the federal minimum wage, victims as they are of an evil system of economic organization that dares assign a value to labor performed in the context of supply and demand.   

That evil is, of course, a free market.

One might imagine that defending the “unfree” alternative to a free market would be an untenable position.  And it certainly is, if the economic realities that govern marketplaces and history are any consideration.  But what social engineers and statists lack in a cogent argument against a free market, they make up for with sly packaging.  They suggest that the appropriate role of government is to rein in the excesses of the free market, thereby making the market (somehow) more efficient via sensible impositions in the marketplace. 

What must first be understood is that government attempts to raise the minimum wage amounts to little more than price-fixing, and price-fixing is the touchstone of countless tyrants and Democrats of times long gone.  So it’s astonishing that any of it can possibly be considered a novel policy position to make the current marketplace more efficient. 

A prominent example in the 20th century might be FDR’s razing of agricultural products in 1933 to raise the prices of produce and livestock.  Ever the humanitarian and man of the working class, FDR’s policy enactments culled over six million pigs and plowed under untold amounts of farm produce.  The end result was that the supply of agricultural products dropped while demand was relatively stable, and as a result, prices increased.  This end result was advantageous for farmers who enjoyed a higher price for their product -- less so for the impoverished and hungry Americans who found food scarcer and less affordable.

Why did FDR do it?  Well, it was just an idea that seemed sensible to him and his Secretary of Agriculture, Henry Wallace, at the time, the latter a man who was reportedly “most impressed” by Soviet farming.  That the Soviet farming practices with which he was so enamored and influenced by led to the Holodomor in Ukraine, or that these policies set a precedent for the “basic governmental approach of supporting farm prices by reducing supplies” that “continues to this day.”  But that doesn’t dent his legacy a bit among the progressive faithful, or in the schoolbooks your children read.   

Democrats today are even less forgivable for their efforts to fix wage prices, knowing, as they should from ample evidence throughout history, that the practice is destructive.  Even Dr. Alan Krueger, chairman of the president’s Council of Economic Advisors, could only muster the following unconvincing support for Obama’s suggested policy of raising the minimum wage to $9 back in 2013:  “A range of economic studies show that raising the minimum wage increases earnings and reduces poverty without measurably reducing unemployment.” 

“Note the shifty adverbs, “modestly” and “measurably, which can paper over a lot of economic damage,” observes the Wall Street Journal in an article from February 2013, cleverly titled “The Minority Youth Unemployment Act.”  “In the real world,” the article continues, “setting a floor under the price of labor creates winners and losers.  Some workers will get a $1.75 raise.  Great.  But others – typically the least educated and skilled – will be priced out of the market and their pay won’t rise to $9.  It will be zero.”

Source : AEI

Let’s remain in the real world for a moment more, and observe that there is overwhelming evidence suggesting that Dr. Krueger’s vague pitch to sell a minimum wage increase is altogether false.  UC Irvine economist David Neumark “has looked at more than 100 major academic studies on the minimum wage,” and concludes that about 85% of them “find a negative employment effect on unskilled workers.” 

Back in fantasy land, however, ideologue Barack Obama hasn’t reconsidered his plea for a $9 minimum wage, but upped the ante altogether, calling for an increase to the federal minimum wage to $10.10 in the State of the Union address in 2014.  And in case you don’t remember, he was so sure that arbitrary price-fixing by the federal government is preferable to free markets naturally dictating the prices of wages, goods, and services, that good King Barack felt obliged to issue an edict (without Congressional support, mind you) raising the minimum wage for all individuals employed in federal service contracts.   

A roughly 40% hike in cost may be all well and good on the balance sheet of a federal government that spends money with no consideration at all to the fact that it even has a balance sheet, but businesses typically have finite resources, operate in competitive marketplaces, and have obligations to shareholders.  When the government introduces arbitrary mandates to increase costs, a business will necessarily increase the prices of goods and services rendered to maintain profitability.  When demand slows due to higher prices, there will be efforts to cut costs.  And unskilled labor, now more expensive, is the usual target of these cuts. 

There is nothing magical or obscure about any of this.  Increases to minimum wage prove uniquely detrimental to the most unskilled laborers, who are typically paid minimum wage.

But the statist media criers are out in force, longing to see the outcome of the minimum wage increases that have occurred in select municipalities around the nation, and hoping for the best.  Why?  Because “there’s only one way to find out” if it can really work, and that’s to do it.

Suzanne McGee of the Guardian makes just this argument.  “There is some data suggesting reason for concern,” she writes, citing an American Enterprise Institute article offering evidence that the last raise to the federal minimum wage in 2009 (signed by George W. Bush, lest we forget) cost Americans 1.4 million jobs.  But she goes on to suggest that the ongoing fast food strikes are actually a sign that the debate for $15/hr minimum wage is intensifying, and not just a gaggle of activists with a completely unreasonable demand to have their pay doubled for no practical reason whatsoever.  (Again, the left takes this seriously, even if reasonable people do not!) 

The piece is mired in questionable assertions, though I think this one stands out as my favorite: “If a small business’s profit margin is so razor-thin that it can’t pay its employees enough to live above the poverty line if they are trying to support even a single child, then perhaps that company might want to reconsider its business model?”  It’s one of those wonderful statements that truly capture both the unfounded arrogance and economic ignorance so common of the left.  Who Suzanne McGee is or how she’s qualified to tell any small business owner how he or she should run a business is anyone’s guess, as is how a worker having children adds to that worker’s production value such that it warrants higher pay.

She does pose an interesting question, however.  “The risk that we run, of course, is that once we undertake the experiment, and commit raising the minimum wage, we are running the risk of that being that we’re choosing the wrong course of action.  But is paralysis any better?”

The answer to that question is an emphatic yes, if by paralysis you mean a dynamic market unimpeded by supposed government benevolence and unencumbered by outmoded ambitions of price-fixing that are proven failures.  There’s a compelling argument that Americans in the 1930’s would have been immeasurably better off had the government been a bit more paralyzed, to be sure.  The better question is, should we disavow the historical evidence before us in favor of an idea that social engineers happen to like and could prove destructive to American youth, who might be denied entry level employment on a path to becoming productive and successful individuals by raising minimum wage to whatever number the government arbitrarily decides upon?

The answer to that question should be a resounding and confident “No!”

William Sullivan blogs at Political Palaver and can be followed on Twitter.