Minimum Wage? Minimum Regulation!

(I will post a flat tax blog this week, but I had to write this for the paper, so I figured I would go ahead and post it. This is a reply to a call for a minimum wage increase.)

One of the most heart-warming and politically expedient issues to bring to the legislative agenda is an increase in the minimum wage. Many well-intentioned people call for a raise in wages, but politicians should (and more than likely do) know better than to fool with it more often than once or twice a decade.

First, it is important to understand that the minimum wage is truly NOT a living wage. Fortunately for the U.S. economy, only 0.8 percent of workers who get paid by the hour make $5.15, according to the U.S. Bureau of Labor Statistics. Another 2.2 percent make less than the minimum, but many of these jobs (such as waiting tables) end up making much more than the minimum wage after tips and perks. The same agency reported in 2003 that more than half of those minimum wage earners were under the age of 25.

It is therefore safe to assume that most minimum wage jobs are occupied by high school and college-aged students, not people trying to support a family. For the few older minimum wage workers, and those younger workers who do have families to support, Uncle Sam doles out a bevy of entitlement programs to improve their quality of life.

If raising the minimum wage would make life better for everyone, then our solution would be simple. However, a survey conducted by the Journal of Economic Perspectives in 2005 shows that 71 percent of economics professors at America’s top universities agreed with the statement, “A minimum wage increases unemployment among the young and unskilled.”

Simple economics indicate that government regulation has an adverse effect on markets, which must be allowed to reach their equilibrium. Firms cannot survive if they offer potential employees $2 per hour, even for a low demand job, because no one would take the job. Therefore, the markets adjust to the labor supply and demand.

It boils down to this: the markets will decide the demand for a good (in this case a specific job). Doctors are in high demand, so they can expect to have more job security and make significantly more than a low demand worker, such as a stocker at your local grocery store (i.e. yours truly). If the government tells private firms that they must pay a low demand worker more than they are willing to pay, the low demand worker loses his job without a blink from the employer. In this sense, minimum wage laws, while politically expedient for elected officials, truly do hurt those they are intended to help.