WyBlog

How about a $20/hr minimum wage?

It's the Christmas season and the loony liberals in this state are the gift that keeps on giving. A state legislative commission has recommended that New Jersey should raise the minimun wage to $8.25 per hour, and then index it annually to inflation. The current minimum wage is $7.15/hr, the highest in the nation.

Well, if they want to lift minimum wage workers out of poverty, why not set the minimum wage at $20 per hour? That will certainly make life better for everyone who earns the minimum wage! What's that? I'm being ridiculous? Really? Why?

Because raising the minimum wage to $20 per hour would obviously result in many (if not all) minimum wage jobs disappearing. Businesses would not survive if they had to pay entry level workers that much money. So, what is so magical about $8.25? Small businesses are struggling to stay afloat what with spiraling taxes, high energy prices, and sluggish sales. A business has a finite pool of money that it can allocate to wages; raising the minimum wage will most likely result in more unemployment. A store that can hire 5 people at $7.15 per hour may very well decide they can only keep on four people at $8.25. So, somebody will lose their job.

Noted economist Thomas Sowell has written extensively about this issue. In Capitalism Magazine he describes the correlation between rising minimum wages and unemployment:

In 1977 Dr. Sowell published a detailed monograph on the adverse consequences of automatically escalating minimum wages. It is worth your time to read the whole thing. In a devastating scholarly critique of the "living wage" movement based on solid economic analysis he concludes thusly:

The plain fact is that most people who start out working for minimum wage don't remain there for long. The apocryphal family of four living on one minimum wage paycheck is not rooted in reality. According to a Cato Institute study more than 85% of the workers earning the minimum wage are young people just starting their first job. This same study showed that within a year their wages had increased by about 30% as they gained skills and experience.

Raising New Jersey's minimum wage may make the do-gooders feel noble, but it will not do anything to actually help poor people find and keep jobs. Higher starting salaries will require that applicants have greater skill sets, but skills can only be learned if the person has a job in the first place. By making the cost of that first job prohibitive to a prospective employer the state will soon find that the only thing being increased is the length of the line at the unemployment office.

Posted at 10:08 by Chris Wysocki   [/rants]   Comments | Archived | Perm Link |   |   Tweet