Editorial: Minimum wage hikes take jobs

Published: Thursday, September 5, 2013 at 18:59 PM.

In big cities across the country, fast food workers are striking, demanding that their employers almost double their pay, from the federal minimum of $7.25 per hour to $15 per hour. Their action fits with the agenda of President Barack Obama, who wants to increase the minimum wage to $9 per hour.

It sounds good, if you think money just appears from nowhere. It is much less appealing when you consider what it does to the economy and even how it affects unskilled workers.

Where would the money come from to pay minimum-wage workers a higher rate of pay? It would come from the customers of those businesses. When the cost of doing business rises, those businesses have to raise the prices of their products. This happens across industries and across the economy.

The result is inflation. Workers are making more money, but that money is only buying what their former wage purchased.

But what if a business can’t raise prices? What if consumers won’t pay more for its product? Then that business will cut minimum wage jobs.

Increasing the minimum wage makes it more expensive for businesses to hire and train workers. That makes them less likely to expand their workforces and more likely to cut back.

Academics debate the effects of raising the minimum wage, and there is much competing research on how much such a raise affects employment. But one particularly applicable study looked at states that raised their minimum wage compared to those that did not. It found a loss of minimum wage jobs in those states that did increase their minimum wages.

It is clear that the laws of supply and demand continue to apply despite government attempts to manage the economy. The federal minimum wage is an artificial control on the market system. It attempts to set a value on labor outside of how supply and demand set that value. The market then makes adjustments. Those adjustments include rising prices and falling employment.

Activists and labor unions pushing this proposal act as if the money necessary to pay a higher minimum wage would be taken straight from the pockets of the richest “1 percent.” It wouldn’t. It would come from the general economy, an economy that is barely growing.

It is true that the minimum wage has not kept up with inflation. But in industries and locations where the market has set a higher value on labor, employers are paying more than the minimum. Where the market has not set such a value, employers are still paying the federal minimum.

Requiring the market to set a higher value on that labor will only spur businesses to raise prices and cut jobs.


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