Commentary

Minimum Wage Myth

Hillary Rodham Clinton and Rudy Giuliani are not usually thought of as politicians who are much concerned about repealing laws. But on one law they apparently agree: The Law of Demand. The Law of Demand states, quite logically, that an artificial increase in the price of something will cause less of it to be purchased. In the case of increasing the minimum wage by government edict, this means fewer low-income workers will be hired. But Hillary and (soon, apparently, based on statements he made over the weekend) Rudy believe that the law can and should be repealed. They want the federal government to increase the hourly minimum wage from $5.15 to $6.15.

And because the Law of Demand would no longer exist, there would be little or no unemployment among the poor as a result.

Excellent!

But now that the Law of Demand has been repealed, why not increase the minimum wage to $20 an hour, or $100?

Even better, why not repeal the Law of Supply and mandate that the cost of food, clothing, shelter and Yankees games be cut by 50%? Under Hillarynomics, surely the supply of these goods won’t decrease, and they’ll be half as cheap!

Or we can stop the political pandering and start dealing with reality. According to the Employment Policies Institute, the average family affected by the minimum wage has an annual income of $38,000 because seven out of 10 minimum-wage workers live with a working spouse or relatives.

Furthermore, the average income of minimum-wage workers increases by 30% within one year of employment on the basis of learned skills. Which is why any artificial barriers to learning those skills — which is what the minimum wage is — represents a cruel hoax to the working poor. Wage increases due to increased skill levels explain the remarkable fact that only 2.8% of workers over the age of 30 are receiving the minimum wage.

The Clinton administration and far too many members of both parties in Congress seem enamored of the labor policies of European countries such as France and Germany — policies that claim to be compassionate but that end up creating double-digit unemployment and economic stagnation. We don’t need to import Euroscloris to the United States.

In fact, the primary reason to reject an increase in the minimum wage is rooted in the very essence of America: freedom.

If you as a job hunter wish to take a $5-an-hour job offered by a prospective employer who sees that as the value of the job, why should that be against the law?

Why, in the land of the free, should the federal labor police be allowed to step in and prevent that free economic contract from taking place? But if freedom isn’t reason enough to oppose the minimum-wage law, consider this pithy comment from two real economists. Donald Deere and Finis Welch of Texas A&M University write:

“Our conclusion is simple and direct: To the extent that increased minimums raise the cost of hiring low-productivity workers, fewer of those workers will be employed.”

No one, neither labor nor management, wants that to happen.

Edward H. Crane is president and founder of the Cato Institute.