The Illusions of the Minimum Wage

Asking Democrats if they favor an increase in the minimum wage is like asking Martha Stewart if she'd mind sharing some decorating ideas. There are few things they'd rather do, and Ted Kennedy thinks it is high time.

The Massachusetts Democrat is offering a measure that would boost the wage floor from $5.15 to $7.25 an hour over the next two years. He noted that it has not been lifted in eight years, during which time senators have gotten seven pay raises. "If the Senate is serious about an anti-poverty agenda," he said, "let's start by raising the minimum wage." Republicans, meanwhile, might accept an increase of $1.10, as proposed by Sen. Rick Santorum of Pennsylvania.

It may seem like an inescapable truth that if you increase the amount employers pay their lowest-wage workers, you will have fewer poor people. Money, after all, is what they lack, and a higher minimum wage means more money to those in the worst-paying jobs.

In fact, this is one of those obvious facts that turns out not to be a fact at all. The available evidence suggests that raising the minimum wage doesn't do what it's supposed to do.

How can that be? Although you can force employers to pay their workers more, you can't force them to employ people. If you raise the tax on cigarettes by $2.10 a pack, people will smoke fewer cigarettes. The minimum wage functions as a tax on hiring low-wage workers -- which means companies will look for ways to do without some of them.

Economists have always taken this effect as an unfortunate reality. But a few years ago, ardent proponents of wishful thinking hailed a study that seemed to confirm their hopes.

Princeton economists David Card and Alan Krueger looked at what happened in New Jersey when it raised its minimum wage and neighboring Pennsylvania didn't. Far from losing jobs, they reported, New Jersey enjoyed a boom in hiring compared to its neighbor -- suggesting that companies would much rather pay higher wages than lower ones. President Clinton even cited their work as proof that we could boost the minimum wage without fear.

If this claim were to prove accurate, says Hoover Institution economist David Henderson, we should expect stores to start raising prices instead of cutting them when they want to clear out unsold merchandise. As it happens, the study fared poorly under scrutiny.

Economists David Neumark of Michigan State University and William Wascher of the Federal Reserve System got more comprehensive data and found that actually, New Jersey didn't gain jobs compared to Pennsylvania -- it lost them. Not only that, but in both states, rain continued to travel downward rather than upward. Even the most vigorous supporters of the minimum wage don't really believe that the higher the wage, the more jobs there will be. If they did, they wouldn't propose an increase of $2 an hour -- they'd be pushing for a raise of $10 or $20 an hour. What harm could it do?

It's conceivable that the minimum wage could be a boon to the poor even though it destroys some jobs. Those low-wage workers who keep their jobs are better off, after all, and they are bound to outnumber the losers. The net effect could be beneficial to those at or below the poverty line. Neumark and Wascher, however, have found that for every poor family that gets out of poverty thanks to a change in the minimum wage, there is a non-poor family that falls into poverty.

Neumark, now with the Public Policy Institute of California, says that many low-wage workers aren't poor, or even close to it. About a third of them, including a lot of middle-class teenagers, live in households with above-average incomes. Raising the wage floor makes it easier for them to buy gasoline and movie tickets, but it does nothing to combat poverty.

What's more, he's found, the people most likely to lose their jobs because of the minimum wages are not middle-class teens but poor adults. The federal floor has the perverse effect of inducing companies to lay off the very people it is supposed to help -- while channeling money to those who need it least. The bottom line, Neumark writes, is that "minimum wages deliver no net benefits to poor or low-income families and, if anything, make them worse off."

Kennedy and his fellow Democrats may think they're doing poor people a favor. But with friends like these . . .

The minimum wage is unconstitutional.

Though Congress has the "dubious" power to "regulate commerce" constitutionally, emanating from the "commerce clause," (how and when did a private business become a "foreign nation" or one of the "several states" or a "Indian tribe?"), the power still cannot be used to violate the Bill of Rights.

Amendment V

"nor shall private property be taken for public use without just compensation."

SUPREME COURT OF THE UNITED STATES

No. 98—963

JEREMIAH W. (JAY) NIXON, ATTORNEY GENERAL OF MISSOURI, et al., PETITIONERS v. SHRINK MISSOURI GOVERNMENT PAC et al.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT [January 24, 2000]

Justice Stevens, concurring.

"therefore, I make one simple point. Money is property;"

Since the minimum wage law has no mechanism to compensate private property owners for their property that has been taken for obvious public use, the minimum wage law is blatantly unconstitutional.

Since each Senator takes an oath of office when taking their position as a Senator, then whenever a Senator votes for a law which violates their oath of office they should be impeached.

Thanks for posting that.

Automation
vs.
low-wage workers.....

by Larry Lawver

Minimum wage laws cause unemployment. I see this all the time, but I realize most people don't. My perspective comes from dealing with reality and concerns about productivity every day. This view of the world is very simple; it's based on the way the world actually works, and I hope by sharing it with you, you can understand why it has to be that way.

Automation is a capital investment, with all the cost up front and with the justification in the ROI (Return on Investment) on the back end. Most industrial plants will buy any project with an ROI of less than two years. However, since it requires the up front expense, most plant managers will only start an automation project if they are kicked into it. The reason for their resistance is that manual labor is a continuous and almost level expense while investing in new systems is a risky and visible exercise.

As the labor unions well know, raising the minimum wage raises all wages by the same amount, not just the lowest ones. I've been in automation since 1982, and I've learned that every time they raise the minimum wage, I get richer and employment goes down. The key is that it motivates lousy plant managers to consider automation projects because their costs (the usually "continuous and almost level" expenses) just got jacked up!

For example, imagine a plant with 20 manual laborers making $8.00/hour, which is at least $10.00/hour or more to the employer, i.e., $8K per week and $832K per two years. Jack up wages by a buck, and the two-year cost goes to $915,200. After automating the process by spending $500K up front and employing three trained technicians for $18/hour, the expense for the first two years is $500K+$224640=$724,640. Automation was already justified, but jacking up the minimum wage motivates even incompetent management to look at options. Clearly, the ROI is far less than two years, and 17 fewer people are employed. (Automation has an expected life of 10 years, but I know of automation that has been in place for 30 years with the cost reductions holding.)

Thousands of automation people like me are out there every day making the ROI case, but the upfront nut and, frankly, poor management, keeps thousands of plants from making the automation investment. Raising the minimum wage forces management to look at the other options anyway. In the above, very realistic case, management sees nearly $200K in reduced expenses over the first two years by listening to what I've been trying to tell them all along. They lay off low wage workers and I get richer. And so do they, their customers, their customers' customers and the consumers of the end products.

I hope this helps your understanding!

-------------

Larry Lawver is an industrial automation consultant and entrepreneur in central Florida.

_____

"Productivity is expandable. In fact, productivity is fabulously expandable."-- P.J. O'Rourke in Eat the Rich

Also see: Books on Basic Economics, Minimum Wage Myth, Price Controls,

Plain Facts' Page on the Minimum Wage and Price Controls in Health Care

The Link Between Productivity, Jobs, and Wages

The "Selfish Altruism" of "Nice guy" Fascist Businessmen

"If the defenders of the minimum wage really believe their own propaganda, then why are they being so stingy? ... If wealth can be commanded into existence by the legislature, then why stop at a measly $7.15 per hour? Why not $25 per hour? Why not $100? Think about it." -- Paul Blair

-- from "Automation vs. Low-Wage Workers, HERE

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Automation vs. low-wage workers.....

Automation
vs.
low-wage workers.....