President Barack Obama wants Congress to incrementally raise the federal minimum wage to $9 an hour from $7.25 by the end of 2015 then automatically tie it to inflation. His intent is to raise the incomes of Americans who have fallen further behind in an economy he made worse.
Nothing, however, could be more devastating to the economic prospects of the nation. Because it would be another expensive, unwarranted extension of the welfare state, Congress should give serious consideration to eliminating the minimum wage altogether.
The president is suggesting that the labor market has failed to provide a “living wage” to an estimated 15 million low-wage workers. That’s an emotional argument for raising the floor for the lowest-paid employees. It’s also flawed reasoning.
What the president is proposing is an outmoded, ineffective mechanism for assisting the working poor.
A small minority of workers may end up better off. But over the long haul, wage manipulations are an economic disincentive for job development. There have been fancy statistical studies that purport to show no such impact, but they defy simple logic.
With higher wages come higher employer expectations. So people with the fewest talents – usually at the low end of the social/economic ladder — become less desirable and are ultimately priced out of the job market. Their skills aren’t worth the newly established minimum.
Young people with limited experience could find it harder to land their first full-time entry-level jobs where they can acquire the skills necessary to make their labor more valuable.
Most employers already pay more than the mimimum wage, even for hamburger-flippers and dishwashers. These workers could end up with no job at all. The government can issue edicts to raise wage rates from inside the Beltway, but they cannot force employers to hire workers at wage rates they can’t afford to pay.
The president’s backing of this measure burdens job creators by increasing the cost of doing business – especially in a weak economy. Forcing employers to pay store clerks, restaurant workers, and janitors wages above market rates inevitably leads to slower growth and higher inflation.
A more accurate description of “minimum wage” is as a benchmark for higher union wages. Obama’s push is an extension of his ongoing efforts to curry favor with his union buddies.
America would be best served if the president accommodated new and prospective businesses and eliminated government-sponsored impediments to real wage growth. Businesses, for example, are constantly burdened with unnecessary regulations, onerous zoning and licensing requirements, and high taxes. These barriers get in the way of enterprise, choke-off the entrepreneurial spirit, shackle the economy, and drain away opportunities rom workers.
The best prospect for Obama’s poverty agenda is a robust economy that bids up demand for labor. It would never occur to this president, but cutting the payroll tax would be an excellent way to directly increase workers’ take-home pay.
Congress should think long and hard about more artificial skewing of the labor market. The better option is to end the minimum wage and let it quietly pass into history. America simply can’t afford more intrusive disincentives that erode the competitive position of businesses – and establish another roadblock to a broadly-shared prosperity.