Economic Justice and the Minimum Wage

In between elections, both parties tend to gravitate toward the center in an attempt to appear more “mainstream” and to attract the ever-elusive “moderate” voter. However, as elections appear on the horizon, both parties retreat to their respective bases with promises and threats to entice or frighten voters to the polls en masse. Election cycles thus illuminate the murky business of national politics, offering voters a clearer view of where each party really stands on important issues.

The Republicans, of course, are offering national security and the war on terror as the central issue of the election, if not the modern era. Other important, albeit lower-tier issues such as the economy, high gas prices, the environment and employment are also getting attention. “Progressives” are sticking with the hackneyed class-conflict rhetoric of political panderers, those whom economist Walter Williams aptly labels “poverty pimps.” Thus it is that the question of the minimum wage found itself in the spotlight recently as Democrats hoped to enact a gradual increase from the current $5.15 to a so-called “living wage” of $7.25.

Although the legislative action foundered in the Senate, Democrats are hoping to use the issue as an election year banner to rally their base to the ballot box. To keep the issue alive until November will require ignoring the rules of economics and keeping up the drumbeat of charges that those opposed to increasing the minimum wage are motivated by greed and acting in the interest of big business while coolly ignoring the plight of the lower class.

A closer look at a relatively uncomplicated economic principle will illuminate the controversy surrounding the minimum-wage debate and will demonstrate that government meddling in the minimum wage actually does far more harm than good. The irony is that the most harm is done to those whose cause the Left is purporting to champion — younger workers and the lower class.

The overwhelming majority of those currently earning a minimum wage are young people, mostly students working part-time while attending college. In fact, of the entire population earning a minimum wage, only 2.8% are over 30 years old. This group is classified in economic circles as “low-skilled” or “under-skilled” employees. These workers are at that formative stage in their lives when they are learning important work-related skills that will serve them in the future. Given the paucity of their work experience, young people have much to learn from entry-level positions. These jobs often serve as an introduction to the world of business. Having worked in retail years ago as a young student, I can vouch for this. While hardly a glamorous job, over the course of several years it taught me a number of skills that come in handy to this day.

A low minimum wage allows employers in many different trades to hire a robust number of youngsters. These new employees can earn some money while they attend school and at the same time receive invaluable experience for the future. Entry-level positions serve as a first step to better opportunities down the road and to eventual salary increases based on merit (rather than government dictum). A look at the numbers tells us that within a year’s time, the average income of the worker earning a minimum wage will actually jump 30% due to raises based on his increased value to the business.

Let’s now take a look at the deleterious consequences of government meddling in the wage rates.

It is not difficult to see that if a small business is compelled via legislative fiat to pay its entry-level employees a higher wage, the forced increase will have detrimental repercussions. Employers will not be able to hire as many workers in the first place, so fewer people will have jobs, period. In some cases companies will drop workers who have become a liability when low skills are combined with higher wages. Some may like to paint the picture of the average business hording piles of money in a safe, with the compassionate thing being to force them to crack open the safe and share the wealth. In reality, this is just a cooked-up scenario. Forcing the average business arbitrarily to pay employees more will result in job losses.

In addition, an increase in the minimum wage results in higher prices which will ripple through the entire economy as employers look for ways to compensate for the additional labor costs they cannot cover by cutting staff. The higher prices will eat up the very income increase that the higher wage is supposed to create.

The dirty little secret is that the minimum-wage movement is a red herring, intended to conceal the true motivation behind the government’s interference. The political backers of the wage increase are counting on the spillover effects of a jump in union wages and union contracts — these are tied to the minimum wage. In turn, they are counting on unions to get out the vote come November. This is simply a political ploy. The minimum wage is nothing more than a disguised tax on business, which is inevitably passed on to consumers.

Occasionally we hear the complaint that the minimum wage is not enough for a worker to feed his family, or that a family with two minimum-wage earners and several children is still under the poverty line. But the minimum wage is not meant to be the wage of a family bread-winner. Rather than talking about the minimum wage, we should be talking about how to enhance the job skills of low-wage workers through training opportunities and education. Meanwhile it is still better for that family bread-winner to have a minimum-wage job — learning through experience — than to be unemployed.

We already have historical data on what happens every time the government has meddled in the minimum wage: unemployment — among young blacks in particular — has actually increased. Economist Ronald Nash succinctly sums up the case against government intervention in wages. “Interventionism cannot be justified in the short run because if fails the moral test. And interventionism cannot be justified in the long run because it fails the economic test.” In other words, interventionism fails the moral test because those who may temporarily benefit from an increase in the minimum wage will do so at the expense of those who will lose their jobs because of employers’ increased labor costs. It fails the economic test because it’s simply bad policy for business. It will result in both higher prices and a higher unemployment rate. The Left’s objective in promising to increase the minimum wage for those they label “disadvantaged” amounts to a rotten quid pro quo. Scraps are tossed out in return for votes and nobody but the politicians ends up better off.

© Copyright 2006 Catholic Exchange

Maldonado-Berry is currently studying Social Communication at the University of Santa Croce in Rome. He also works for Vatican Information Service (VIS) and Rome Reports, a news agency in Rome that covers Church events.

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