>>Minimizing Economic Opportunity by Raising the Minimum Wage
by Tim Kane, Ph.D.
WebMemo #676
Congress is once again considering amending its worst economic law, the minimum wage. After decades of experience, everyone should know that regulating the price of labor is identical to any other price control and an especially crude way to “fix” free markets. Raising the minimum wage will hurt low-income workers, cost jobs, and hobble the American economy. Congress should know by now that bucking the laws of economics does not work.
Simple Economics
A minimum wage operates by removing the lowest rung on the economic ladder – it doesn’t just take away current jobs, but also future job opportunities. So how many rungs will Congress knock out this time? Senator Ted Kennedy proposes raising the minimum wage by $2.10 an hour. The Republican alternative from Senator Rick Santorum calls for an increase of $1.10. So the two options on the table are a mandatory price increase of 41 percent or 21 percent. The consequences for labor demand are predictable.
The goal of price controls like the minimum wage is essentially to repeal the law of supply and demand, but senators might as well try to repeal the law of gravity. Worse than folly, disrupting the equilibrium of labor markets causes economic damage. Although the minimum wage will not work according to economic theory—and it has not worked in reality—what makes it especially tragic is that it hits poor Americans hardest.
A survey published in the Winter 2005 Journal of Economic Perspectives, an academic publication, reports that 71 percent of economists at America’s top universities agree with the statement “a minimum wage increases unemployment among the young and unskilled.” About one-third of the economists agree outright, and another third agree with reservations. Think about that: the consensus among top economists is that the very existence of a minimum wage harms those who, according to its supporters, need it most.
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