Market should set wages

Democrats apparently believe that increasing the national minimum wage is a winning issue in their bid to win back Congress this November. The Democrats' proposal is for Congress to boost the national wage to $7.25 an hour over the next two years from the current $5.15. That would be a staggering increase of 41 percent.

Raising the minimum wage is an issue with crowd appeal: Supporters argue that the least-paid are lifted (stingy business can afford it!) and those who aren't least-paid feel like they're doing good. Well, we hate to be the wet blanket amid all the bonhomie, but this is one theory that just doesn't hold up. The market sets wages, not the U.S. government, and it's always better if the market takes the lead.

For one, California probably would not be directly affected by congressional action. The state minimum wage here already is $6.75 an hour and arguably the market pays better than that for many low-skill jobs. Both Gov. Arnold Schwarzenegger and the Democratic leadership in the Legislature agree that it should be raised to $7.75 an hour. They disagree on whether the higher minimum wage level then should be tied to inflation, which the Democrats favor but the governor opposes.

But for the rest of the country, a national increase in the minimum wage would strongly affect various areas.

"It's a bad idea," Richard Vedder, an economist at Ohio University and author of numerous studies on the minimum wage, told us. "It doesn't accomplish anything. The goal presumably is to reduce the poverty of people with low incomes."

Yet there is no "statistical relationship" between raising the minimum wage and reducing poverty, he added. When the minimum wage is increased, poverty does not go down. And when the minimum wage stays constant, poverty does not increase.

On the contrary, he said, there is some evidence that increasing the minimum wage causes problems for the poor. He pointed out that, when Washington state increased the minimum wage in the late 1990s, unemployment rose. Increasing the minimum wage also forces many businesses to find ways to cut costs in other areas, such as reducing medical, pension and other benefits for workers.

Finally, he warned, those at the bottom of the wage scale - Hispanics, blacks and teenagers - are most hurt when the minimum wage forces companies to dismiss workers or not hire new ones. The essential first job that many people get, which inculcates habits of showing up for work on time and putting in a good day on the job, is eliminated or postponed for many, retarding the ability of some workers to advance in the labor force. And it is just such skills, he said, that lead to higher wages down the line.

Another problem we calculated is the differential in labor costs and expenses among the 50 states. For example, the mean hourly salary in Mississippi was $13.99 in 2005, according to the U.S. Department of Labor, compared to $20.44 in California. And of course, the cost of living is different, too, with the median price of a house in Jackson, Miss. being $144,000 in the first quarter of 2006, compared to $563,000 in the Los Angeles-Long Beach-Orange County area, according to the National Association of Realtors.

That's why the idea of a nationalminimum wage is a special folly. "I'm very proud to say that Democrats have made the issue of the minimum wage too hot to handle for the Republicans," House Democratic Leader Nancy Pelosi crowed, as reported in the San Francisco Chronicle. "The more we call it to the attention of the public, the more pressure there is on the Republicans."

But Ms. Pelosi failed to note that, while a national minimum wage likely wouldn't even affect her home state, it would be devastating to low-wage, low-cost-of-living states like Mississippi, where a mandated federal minimum wage of $7.25 an hour would be the rough equivalent of $14 an hour in California.

We urge all Orange County members of Congress strongly to oppose any increase in the minimum wage. Killing jobs should not be national policy.


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