Saturday, August 31, 2013

Still not convinced about the harm in raising the minimum wage?

A few years ago I decided to confine our financial planning work, almost exclusively, to our investment clients (they pay us an asset management fee based on a % of their portfolios' value). I thus raised my hourly fee above what our local market would bear. And, guess what, we haven't issued a by-the-hour invoice in years.

When the Fed wants to slow the pace of borrowing, it raises the cost of borrowing (interest rates).

When bureaucrats want to influence your personal choices (or, more accurately, raise tax revenue in publicly palatable fashion), maybe get you to stop smoking, they---through taxation---force the cost of smoking higher.

Exclusive country clubs charge exorbitant dues to maintain their exclusivity.

When your utility provider hikes its rates, you keep the house a little warmer in the summer and a little cooler in the winter.

When gas is $4.50 a gallon, you car pool, you ride your bike to the store.

When movie tickets are $18 a pop, you wait for the DVD.

When politicians want to reduce private sector employment and increase dependency on government, they---by raising the minimum wage---hike the cost of labor.

Okay, so you nodded your head all the way through the above, save for that last line (just seeing if you're paying attention)---unless, that is, you're a rabid hard-right conspiracy theorist: in which case you not only nodded your head to that last line, you pounded your fist in agreement. I do not personally believe that politicians legislate higher labor costs with the intent of hurting the labor market, they---without regard for the consequences---intend instead to help their reelection bids. 

So let's you and I dispense with all the studies---some conclude that a higher minimum wage doesn't hurt the labor market, others conclude that it does---and commit to the most basic commonsense: Raising the cost of labor absolutely reduces its demand. In the case of the minimum wage, raising it absolutely reduces the number of job opportunities for those who desperately need the work experience.

Still not convinced? Here's one more angle (pardon my superfluity): You tell me, in all honesty:

If Marty raises his hourly fee, will he perform more or less hourly work?
If the Fed raises interest rates, will consumers and businesses borrow more or less going forward?
If bureaucrats raise the cigarette tax, will folks smoke more or less going forward?
If the country club raises its dues, will it attract more or fewer members?
If your utility provider raises its rates, will folks use more or less power?
If gas goes to $4.50 a gallon, will folks use more or less gas?
If the price of a movie goes up, will folks see more or fewer movies?
If politicians force up the cost of labor, will employers hire more or fewer workers?

One last one just came to mind: If McDonalds is forced to raise the price of flipping hamburgers to $15 per hour, will it be more or less selective going forward? Will it choose only the most experienced, most qualified folks $15 will buy? As opposed to bearing the risk and the greater training expense involved in hiring the lesser-skilled applicant. I.e., will there be more or fewer opportunities for the least skilled among us to enter the workforce?

1 comment:

  1. The same thing applies to workers at Wal-Mart. If Wal-Mart currently pays retail clerks $6 per hour, but a forced increase raises that to $7 per hour then perhaps Wal-Mart will now only employ 4 clerks at a time compared with 5 clerks at the old wage. So, while the 4 clerks are now better off, that fifth clerk is now no longer employed, and customers are now forced to wait that much longer as there is one less till open. Basically the additional costs are forced onto customers in the form increased waiting time.