Risking economic liberty…by Jason Pye
Passage by the House of Representatives of the Fair Minimum Wage Act of 2007, as part of the Democrats’ first 100-hour agenda for “A New Direction for America,” was a step in the wrong direction. It leads our nation further astray from the limited government, market-liberal order envisioned by the Founding Fathers. It appears the Senate is about to make the same mistake.
Many in Congress seem to have forgotten that their powers are enumerated and thus limited by Article 1, Section 8 of what George Washington in his first inaugural address in 1789 called “the great constitutional charter” designed to preserve “the sacred fire of liberty” and the “republican model of government.”
In a free society, employers should have the right to hire and fire workers and to pay them wages that are mutually agreed upon, and workers should have the right to freely compete for jobs and, thus, to accept employment at mutually beneficial wage rates. A worker’s minimum acceptable hourly wage, of course, will depend on his or her next best alternative employment opportunity and, hence, on the value of his or her productivity in the marketplace.
Arbitrarily increasing the legal minimum wage simply increases the price of labor without changing a worker’s skill level or other conditions that lead to low wages. Congress cannot repeal the law of demand by a stroke of the legislative pen. When the real (inflation-adjusted) minimum wage rises above the prevailing market wage for unskilled workers, employers will cut back on hours, reduce benefits, and introduce labor-saving methods of production. This is common sense.
Big businesses such as Wal-Mart can weather a 20 percent increase in the federal minimum wage, but small businesses, especially in low-wage states, will suffer. In a recent study in the Cato Journal, Thomas Garrett and Howard Wall, economists at the Federal Reserve Bank of St. Louis, find that “in the relatively poor states the federal minimum wage results in fewer entrepreneurs and fewer of the benefits that entrepreneurship can bring.”
Government interventions such as the minimum wage destroy opportunities for the least skilled members of society. The government promises low-skilled workers higher wage rates, but their incomes will be zero if they lose their jobs. Contrary to popular opinion, a minimum wage law is not “progressive” legislation. Rather, it prevents progress by limiting the options of poor people.
If Congress passes and President Bush signs a new federal minimum wage law there will be a further drift away from the liberal principles that have made America the land of opportunity. Alternatively, doing nothing or abolishing the federal minimum wage would create new job opportunities for low-skilled workers, spur development in poorer states, and, ironically, help lift people out of poverty as they gain experience.
A new direction for America should not be a false progressivism but a swing back toward true liberalism, or what Thomas Jefferson called “a wise and frugal government, which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry and improvement.”
Today the Senate invoked cloture on the minimum wage legislation, only ten Senators voted against it. A tip of the hat to my Senators, Isakson and Chambliss for voting against it, even thought it includes the tax cuts that the Bush Administration wanted.
Last week, Senator Wayne Allard (R-CO) filed an amendment that would have allowed the States the ability to determine their own minimum wage, free from federal interference…you know, how the Constitution says these types of issues should be handled per the Tenth Amendment. But it was rejected. Admittedly, I was surprised with how many Senators voted for the amendment, Isakson and Chambliss voted in the affirmative.
An op-ed in the Gainesville Times drives it home:
Mandating an increase in the minimum wage means one of three options for employers: they accept a smaller profit margin, they cut expenses to maintain existing profit margins or they increase the cost of their product or services.
For many small businesses, reducing profit margins is not a realistic option. Small-business owners frequently walk a tightrope between being viable and being out of business, where one unexpected expense of any magnitude can mean closing the doors for good.
If businesses opt to maintain profits by reducing expenses, they most likely will do so by cutting employee costs, which may well mean the elimination of the very jobs most likely to be affected by a minimum wage increase. A dramatic rise in the mandatory minimum wage may mean the local ice cream shop employs two minimum wage employs at $7.25 an hour rather than three at $5.15 an hour, which is a boon for the two who remain employed, but means job loss for the third.
I’ve seen polls that support an increase in the minimum wage, I’ve seen people say that these people “deserve” a raise, that’s fine that you feel that way, but an economic cost will be paid and that is reality. And let’s not forget that 53% of the people that make minimum wage are 24 years old and younger [Source: BLS – Characteristics of Minimum Wage Workers: 2005].
Why risk economic liberty for 2.5% of the workforce, a quarter of these workers are under 19, another quarter are between the age of 20 and 24, all to increase their “purchasing power” by $80 a week. I don’t think it’s worth it.