The minimum wage myth...

Like most government-sponsored programs and policies, the ideas of a "minimum wage" and a "living wage" are for those on the political left a matter of "social justice."  Both ideas assume that a higher minimum wage helps to lift people out of poverty.

For example, before his inauguration, President Obama pledged in 2008 to raise the federal minimum wage to $9.50 an hour by the end of 2011. The goal, he said at the time, was "to fight poverty" and to help "make work pay for all Americans."

For decades, the left's rhetoric has been quite effective.  For example, on January 1, 2012, 8 states once again raised their minimum wages.  The federal minimum wage currently stands at $7.25/hour with some, like President Obama, calling for an increase.

After adjusting for the cost of living, Pamela Villareal has examined what these increases actually mean:

• New York City's minimum wage has the purchasing power of $3.24/hour in Manhattan.  It's the lowest effective wage of any U.S. metropolitan area.
• San Francisco's $10.24/hour minimum wage buys $6.35 worth of goods and services.
• In contrast, the federal minimum wage in Harlingen, Texas, purchases $8.87 worth of goods and services.

For those on the political left, the solution to the low purchasing power in high cost areas is to legislate a raise in the minimum wage or, better yet, to require employers to pay living wages to those whose minimum wages translate into low purchasing power.

Yes, higher wages should translate into low-wage workers having more money to spend on goods and services.  But, The Motley Monk would observe and those on the political left will not admit, this increase in wages does not translate into greater purchasing power nor does it boost the economy, as proponents of increasing the minimum wage and paying a living wage assert.  Instead, the promised stimulative effect is doomed to fail because those receiving a minimum wage won't be hired.

Why?

A higher minimum wages raise labor costs to employers and incentivizes them to reduce the number of workers.  Thus, employers hire fewer workers or more productive ones.  A last resort is to pass the increased labor costs to consumers which, in turn, oftentimes leads to less consumption and, of course, layoffs.

Who loses?

Those very workers the programs were mean to benefit.

That is a lesson those on the political left have yet to learn as they sound the siren cry for greater social justice.


Let the discusssion begin...



To read Pamela Villarreal's analysis, click on the following link:
http://www.ncpa.org/pub/ib105