Katie Little reports on how a booming economy pushes up wages, naturally, and how employers accommodate the increase in labor costs (HT Darren Thomas).
Of course I could default to the usual, and tell you how government intrusion is not only not necessary, but counterproductive, when it comes to the setting of wages. But, for today, we'll simply talk very basic economics.
So let's say I'm an employer who pays his people way above the minimum wage. What's it to me if Washington mandates a higher minimum wage? I mean, I don't pay it. In fact I'd benefit, since some folks would be making a little more money and, therefore, they'd be able to buy more stuff from my company. Or they'd buy more stuff from my customers' businesses and, therefore, allow my customers to buy more stuff from me. Not to mention that my cheaper-pricing competitors who pay minimum wage might have to adjust and make me more competitive. Hell yes! Raise that sucker!!
Am I making sense? Of course. What I just said---save for the last part---was intuitive. But what if I took a minute and began thinking about who supplies me with the supplies I need. Do my suppliers all pay above the minimum wage? And if, in the off chance they do, do their suppliers? Do their suppliers suppliers? Do their suppliers suppliers suppliers? Is there someone somewhere along the chain who'll have to compensate for, say, a 39% hike ($7.25 to $10.10) in the cost of certain labor? Well of course, there has to be. I mean, the promoters of minimum wage say the would-be "beneficiaries" number in the millions.
So now that we've established that someone else's increase in labor costs can indeed impact me, what are we to think? Well, we can hope that, by some magic, politicians know better than do employers how to make their businesses better. You've heard some say that raising the minimum wage will actually make its payers more profitable, as they'll end up with more productive individuals. Again, the far-reaching assumption here is that employers can't, on their own, find the optimum wage for their low-skilled workers---and that politicians can. You struggle with that one too, right?
Ask an intuitive person why raising the minimum wage is a bad idea and there's a good chance she'll say "inflation". Businesses will surely raise prices to offset the higher labor expense. Well, perhaps, but not necessarily, or initially. Some I suspect will lay off a worker or two, then squeeze more out of who's left to avoid, or to delay, having to increase their prices. Some will go ahead and make that investment in automation that they've been pondering the past few years (see Katie Little's article).
And what's the overall impact of such adjustments? That would be less total employment. You know the old adage, "raise the price of something and you get less of it". And less total employment means more pressure on our social safety net (read higher taxes and/or government debt).
Oh, and what about my personal life? Even if, as an employer, I don't immediately register the impact of raising the minimum wage, I'll surely see it in my private affairs. Maybe I like to travel, and maybe I eat out a lot while on vacation. And maybe I like my hotel room cleaned every morning. Lots of the human tasks devoted to the catering to my activities while escaping the grind are provided by minimum wage-paid folks. Will I pay more for R&R? Or will R&R suppliers---in fear of losing a customer---make the necessary cuts to keep their rates reasonable? Will I then notice their reduced capacity to serve?
Jack Loesch makes the inflation case nicely:
Thus in the long run the minimum wage worker is back to where he or she started as far as a standard of living and all that has been accomplished is to jumpstart inflation. A minimum wage increase does not improve their long-term purchasing power. It does however reduce the purchasing power of all those who did not get a pay increase along with the increased minimum wage. When a restaurant is forced to raise its prices because many of their employees just received a government mandated raise, everyone who didn't benefit from the raise but must pay the higher prices is worse off.
As you might imagine, I can proceed in this vein for a very very long-time. There's virtually no end to the hypotheticals that would point to the ills of politicians dictating to businesses the management of their payrolls. So we'll cut to the chase.
I could cite examples like Switzerland and Singapore, places where folks enjoy average incomes exceeding those of American workers, yet have no minimum wage restrictions. But each situation possesses its own unique set of circumstances---other than the lack of a minimum wage---that one can point to to explain away such phenomena. So allow me to make what the proponents of politicians picking numbers and making them law would deem a pithless point, that it's all about freedom. The freedom of low-skilled individuals to compete for work. The freedom of employers and employees to contract with one another, without the dictates of politicians who are utterly clueless as to the conditions that would lead these two parties to the optimum outcome.
Once upon a time the Supreme Court got it right:
Lochner v. New York, 198 U.S. 45 (1905), was a landmark United States Supreme Court case that held that "liberty of contract" was implicit in the Due Process Clause of the Fourteenth Amendment. The case involved a New York law that limited the number of hours that a baker could work each day to ten, and limited the number of hours that a baker could work each week to 60. By a 5–4 vote, the Supreme Court rejected the argument that the law was necessary to protect the health of bakers, deciding it was a labor law attempting to regulate the terms of employment, and calling it an "unreasonable, unnecessary and arbitrary interference with the right and liberty of the individual to contract."
That's it, "the right and liberty of the individual to contract."
Now, if you wish, go ahead and Google the Bakeshop Act. You'll find claims that it was an effort by the Bakers' Union to protect its members against the ills of long hours subject to hazardous working conditions. Dig a little deeper and you'll find the truth: That, like other intrusions on the right-to-contract, such as the Davis Bacon Act, the Bakeshop Act was designed to squash the big bakeshops' non-union competition. By simply adhering to a most basic "American" principle, the 1905 Supreme Court thwarted an all out attack on low-skilled individuals.
Who's going to save them now?