|
Congress passed the first minimum wage increase since 1997 as
a part of the hotly disputed Iraq spending package finally signed by
President Bush. The increase, which will raise the federal minimum
wage from $5.15 per hour to $7.25 per hour over a two-year period,
was hailed by Senator Ted Kennedy as "only the first of many
steps we must take to address the problems of poverty and
inequality". 1
The Democrats, after taking control of Congress in November, made it
a high priority to raise the minimum wage in response to the
increased financial strain higher prices has had on low income
workers. As prices have risen significantly over recent years for
everything from gasoline to food, the nation's lowest paid workers
have found it increasingly difficult to make ends meet.
The concept of a minimum wage might seem compassionate,
but it does not come without cost. Evidence suggests that increases
in the minimum wage can be linked to higher unemployment. Jeff Cox,
a contributing writer for CNN, notes that “national unemployment
hit its highest rate since the Depression” after the minimum wage
was increased in 1981. The minimum wage was increased again twice in
the early 1990s and “unemployment zoomed”. 2
According to famed economist Ludwig von Mises, raising the minimum
wage can contribute to unemployment because it places an
artificially high price on labor.
3
Basic economics dictates that
higher prices on certain goods will tend to reduce demand for those
goods. Likewise, setting a higher price for labor will tend to
reduce demand for labor. Companies employing workers compensated at
or near minimum wage may find that it’s not worth it to pay the
new minimum wage for some jobs. Other companies may be forced to
reduce their workforce to compensate for higher labor costs. Either
way, the workers hit hardest are those paid at or near minimum wage
- workers that the wage laws are intended to benefit. Minimum wage
laws are essentially price controls on labor and do not always
reflect conditions in the marketplace. A market free of government
interference tends to find the optimal price for any commodity,
resulting in the greatest balance between supply and demand. This
applies to labor markets as well; a labor market free of government
interference will quickly find the optimal price for labor and
achieve the maximum level of employment.
Minimum wage laws may grant a pay raise to the poor, but they
are only pain medication for the true problem of incessantly rising
prices across the economy. When the Federal Reserve was created in
1913 it was charged with preserving the purchasing power of the
dollar while moderating downturns in the economy. It has utterly
failed this mission because the dollar has since lost 97% of its
purchasing power due to inflation; it takes $33 to buy today what $1
bought in 1913. The Federal Reserve has intentionally flooded the
economy - particularly over recent years - with intrinsically
worthless fiat dollars, resulting in the erosion of the purchasing
power of every other dollar in circulation. If the purchasing power
of a dollar declines, prices rise because it takes more dollars to
purchase the same goods and services. The hardest hit by rising
prices are the working poor, the people most likely to earn around
minimum wage. The way to ease the financial strain of low income
workers is not to require businesses to pay them more, but to stop
the Federal Reserve from continuing to debase our currency. Doing so
would benefit all Americans, not just the poor, by ending inflation
and stabilizing prices.
According to CNN, twenty-eight states have already raised or
are in the process of raising their minimum wages, so the new
federal legislation probably will have little real impact. 4
However, the efforts of the Democrats will probably help insure the
continued loyalty of the working poor. Like other socialist
policies, a minimum wage hike is simply a way for the political
elite to purchase the support of a constituency with the money of
another constituency. Democrats might be giving them a raise, but
many low income workers might end up being moved from the payroll to
the unemployment and welfare rolls. Those that keep their jobs will
still struggle to make ends meet as inflation continues to drive up
prices. In fact, increasing the minimum wage in itself contributes
to price inflation. Companies with large numbers of workers earning
at or near minimum wage, such as WalMart, cannot possibly maintain
their workforces and absorb a 40% increase in the cost of labor (as
is the case with the new federal law) without passing it on to
consumers in the form of higher prices. And who shops at WalMart?
Low income workers working for around minimum wage.
|
