Minimum Wage

The New York Times reports on the Senate's failure to raise the minimum wage:

WASHINGTON -- Senate proposals to raise the minimum wage were rejected Wednesday, making it unlikely that the lowest allowable wage, $5.15 an hour since 1997, will rise in the foreseeable future.

"The lowest allowable wage." What to make of that? If we assume, and this is not a stretch, that employers will not pay employees in excess of what they are capable of producing, doesn't the "lowest allowable wage" represent the "minimum level of productivity?" And what becomes of people unable to meet the minimum level of productivity? The CATO Institute has a good analysis:

Simply stated, if the government coercively raises the price of some good (such as labor) above its market value, the demand for that good will fall, and some of the supply will become "disemployed." Unfortunately, in the case of minimum wages, the disemployed goods are human beings. The worker who is not quite worth the newly imposed price loses out. Typically, the losers include young workers who have too little experience to be worth the new minimum and marginal workers who, for whatever reason, cannot produce very much. First and foremost, minimum-wage legislation hurts the least employable by making them unemployable, in effect pricing them out of the market.

An individual will not be hired at $5.05 an hour if an employer feels that he is unlikely to produce at least that much value for the firm. This is common business sense. Thus, individuals whom employers perceive to be incapable of producing value at the arbitrarily set minimum rate are not hired at all, and people who could have been employed at market wages are put on the street.

That's right. The minimum wage hurts the least of us the most. And beyond the minimum wage groups like ACORN have decided to advocate for a "living wage." If the minimum wage makes the marginally employable unemployable, what would a so-called "living wage" do? Thomas Sowell has the answers:

Just what is a living wage? It usually means enough income to support a family of four on one paycheck. This idea has swept through various communities, churches and academic institutions.

Facts have never yet caught up with this idea and analysis is lagging even farther behind.

First of all, do most low-wage workers actually have a family of four to support on one paycheck? According to a recent study by the Cato Institute, fewer than one out of five minimum wage workers has a family to support. These are usually young people just starting out.

So the premise is false from the beginning. But it is still a great phrase, and that is apparently what matters, considering all the politicians, academics and church groups who are stampeding all and sundry toward the living wage concept.

What the so-called living wage really amounts to is simply a local minimum wage policy requiring much higher pay rates than the federal minimum wage law. It's a new minimum wage.

...

While trying to solve a non-problem -- supporting families that don't exist, in most cases -- the living wage crusade creates a very real problem of low-skilled workers having trouble finding a job at all.

People in minimum wage jobs do not stay at the minimum wage permanently. Their pay increases as they accumulate experience and develop skills. It increases an average of 30 percent in just their first year of employment, according to the Cato Institute study. Other studies show that low-income people become average-income people in a few years and high-income people later in life.

All of this depends on their having a job in the first place, however. But the living wage kills jobs.

As imposed wage rates rise, so do job qualifications, so that less skilled or less experienced workers become "unemployable." Think about it. Every one of us would be "unemployable" if our pay rates were raised high enough.

As the Democrats decry the failure to increase the minimum wage, it's important to remember that minimum and living wage laws do more to hurt the very people they purport to help.