The Minimum Wage

Among the items on Speaker Pelosi’s "First 100 Hours" legislative agenda is a hike in the federal minimum wage. I have no doubt that the Speaker and the new Democratic majority in the House have nothing but the best intentions behind this, but raising the minimum wage is an inherently bad idea.

At best, it will have little, if any effect or benefit upon those for whom it was intended to—low-wage workers trying to make ends meet. As George Will points out, "Most of the working poor earn more than the minimum wage, and most of the .06% (479,000 in 2005) of America’s wage workers earning the minimum wage are not poor. Only one in five workers earning the federal minimum wage live in families with household earnings below the poverty line." Beyond even that, 29 states already have minimum wages above the federal level and most workers who do earn the minimum wage are teenagers or young adults, not the major breadwinners of the household. As Rich Lowry observes, "The effect of the hike basically will be to give a small boost to the wage of teenagers working summer or after school."

At worst, a hike will hurt low-wage workers, new entrants into the workforce, and the economy as a whole. A minimum wage hike will cause businesses to raise the prices of their products and services to cover the increased costs of labor. Businesses rarely simply absorb increased costs, and if the minimum wage increases you can expect it will be the average consumer who will end up paying that increase.

Another unintended victim of a hike will be small businesses and their minimum wage earning employees, or those aspiring to be such. Most small businesses cannot simply absorb an increase in the cost of labor, even if they were benevolent enough to do so. They will be forced to either lay off those minimum wage earners in their employ whose wages now exceed what they can afford or they will simply not hire any new workers in the present or future. Those earning the minimum wage will be taking home more, but there will be fewer of them employed than there had been under the previous wage.

The intrinsic flaw in the whole idea of raising the minimum wage, and maybe in the concept of having a minimum wage altogether, is that labor is no different from any other economic commodity—its value and price is determined by the market. Raising the minimum wage is no less odious and no less harmful to the economy than government price controls. Government intervention only harms an economic market, or aggravates further a problem it was intended to remedy.

This is an inescapable lesson of our own history from the past century. Credit to Speaker Pelosi and her colleagues for their noble intentions, but a government-decreed, artificial wage hike will only harm the very people it was intended to aid, and everyone else for that matter. I agree with George Will: "Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly." The market will take care of itself and those within it so long as it is allowed to do so by government.

I would urge the House and the Congress against passing a federal minimum wage hike and, if one is passed, I would urge the president to veto it.