Friday, June 15, 2012

How to Put a Waitress Out of Work

Michael Saltsman, a research analyst from the Employment Policy Institute, explains that an easy way to do so is to raise the minimum wage. Saltsman in his excellent Wall Street Journal piece is responding to Tom Harkin's "Rebuild America Act" which will raise the minimum wage for workers who receive tip income by 220%. 

It boggles the mind that contemporary policy makers and a large set of the intelligentsia still think that raising the minimum wage helps the working poor. In a free market there is a tendency for workers to be paid according to the economic contribution of the marginal laborer. Increasing the minimum wage does not make workers more productive. Therefore, if the government raises a wage floor above the market wage, the quantity of workers hired will decrease and unemployment will occur. This is the last thing we want to do if we are unhappy with our continuing high unemployment rate.

In saying this, I do not mean to be callous to the concerns of the working poor and unemployed. Far from it. Real compassion requires telling the truth. As I said in the paper I presented last week:

Many Christians think, for example, that, because Christians are called to care for the poor and because they think that increasing the incomes of the working poor will greatly help the poor, they advocate raising the minimum wage. Economic theory, however, demonstrates definitively that if the government imposes a minimum wage above the market wage, unemployment will occur and those who lose their jobs or are not hired to begin with will be the least productive, and hence, most poor of all. As I write in my book:
When attempting to formulate economic policy that best fosters sustained economic progress, prevents recession, or encourages recovery in the middle of a recession, policy makers must keep in mind that economic law is indeed economic law. It is not merely economic opinion or economic suggestion. Sound economic principles are sound because they are derived from the reality of human action. Just as Congress cannot repeal the law of gravity, it cannot repeal the laws of economics either. For a policy to effectively achieve its goal, it must be in full accord with sound economic analysis (Ritenour 2010, pp. 382–83).
The bottom line is that raising the minimum wage above the market wage results in unemployment. At best, some people are helped at the expense of the most economically vulnerable. Harrkin's bill would be better titled the Keep America Out of Work Act.

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