No: Supporters’ hearts are in the right place, but the ripple effects of such an adjustment would cancel out its advantages.
It’s not outside the realm of possibility that were I to take on LeBron James in a game of one-on-one basketball, he would kick my hind parts. Strap 15-pound weights on LeBron’s ankles, and he would still thrash me. So the extra 30 pounds LeBron would be lugging around wouldn’t have diminished his performance, right?
Of course that’s nonsense. Yet minimum-wage supporters make just that kind of argument: Strapping increased costs on the ankles of the economy by increasing the minimum wage, they say, won’t negatively affect economic performance. Equally nonsensical.
The notion that Minnesota should raise its minimum wage reflects moral values, not economic principles. Minimum-wage supporters may aspire to provide a livable wage and basic standard of living to low-income households, but a moral rationale justifying an economic policy, however well-intended, is pragmatically a faulty means to the end of bettering people’s lives.
Ironically, determining wages according to a personal concept of “justice” rather than through market forces always negatively affects job creation, puts upward pressure on prices and downward pressure on wages, and contributes to the maldistribution of resources. It always hurts most the people it intends to help.
Using statistics and studies the way a drunk uses a streetlight — for support, not illumination — minimum-wage supporters look at only the easily measured and visible effects of minimum-wage policy (like the outcome “LeBron wins”) and remain willfully blind to unseen but inevitable negative consequences of an arbitrary floor on wages (like the deterioration of LeBron’s overall play).
Consider studies “proving” that when the minimum wage is raised, employers do not raise consumer prices. Because other economic forces are always in play, indeed, little quantitative effect may be seen in an industry affected by the minimum wage. What remain unseen, however, are the qualitative effects of the arbitrary wage increase on the industry and quantitative effects on the economy as a whole.
Raising prices is not as simple as changing an item’s price tag. Prices are always determined by what the market will pay and not by what the vendor needs or wants to charge. Not all cost increases can be passed on to consumers in higher prices.
If raising the price of a product or service in response to an increase in minimum wage drives the price higher than some people are willing to pay, they will buy less of the product or stop buying the product altogether and switch to substitutes.
Consequently, while some workers benefit from an increase in minimum wage, others in supplier industries suffer through job loss or lower wages resulting from the reduced demand for their products and labor. Eventually, even the boost in income for the few is offset by higher prices and lower future wages brought on by reduced economic growth — a net loss for them and the whole community.
When prices are not raised, marginal producers in the industry affected by a higher minimum wage may be forced out of business. Marginal employees — teenagers and entry-level candidates — are replaced by more-seasoned employees who are enticed to take jobs for which they are overqualified because the jobs are now overcompensated. Employers get more picky about whom they hire.
In short, raising the minimum wage always negatively affects employment opportunity and reduces production. How extended and how visible the negative effects of a minimum-wage increase are depends on how deep you look.
In a free-exchange economy, everybody’s money income is someone else’s cost. One cannot push in one side of the economic balloon without causing it to bulge out someplace else.
$7.25 an hour is a price for labor as surely as $7.50 a ticket is a price for going to the movies. Who would argue that the path to prosperity lies in arbitrarily raising the price of a movie ticket by a dollar or two? Who would argue that higher-priced entertainment or higher-priced goods and services generally are good for low-income households?
No one. Not ever.
And yet minimum-wage supporters argue vehemently that arbitrarily raising the price of labor is the way to build a sound economy — even if the result is higher prices generally. They would never agree that higher prices are good, however, without the moral predicate that the increase goes to the employee and not the employer. The “goodness” or “badness” of a price increase is determined solely by who receives the benefit.
For example, speaking of the possibility of a minimum-wage increase in Minnesota, state Sen. Chris Eaton, DFL-Brooklyn Center, told the Austin Herald: “It addresses a basic value we hold in Minnesota. That honest, hardworking people deserve a fair and living wage.”
So saying, Eaton confuses personal moral values with universal economic principles. Her value-based rationale for increasing the minimum wage, however laudable, has no causal connection to achievable results.
The Opinion section is produced by the Editorial Department to foster discussion about key issues. The Editorial Board represents the institutional voice of the Star Tribune and operates independently of the newsroom.