Wage Laws - Are They Good for Us?

Wage laws, including so-called living wage laws, have been getting a fair bit of attention and political consideration lately.  The President advocates a federal increase of the minimum wage to $9/hr and the city of Seattle has gone even further by contemplating a $15/hr "living" wage.  Surprisingly, economists almost unanimously disagree with wage laws.  Personally, I believe higher minimum wage laws would be exceedingly dangerous.

            One of the biggest issues with the government setting wages is that increasing wages does not increase the value of labor.  "Forcing" a business to pay someone a certain wage does not make their labor worth that particular wage, and when a product is not worth its price, there is no transaction as the transaction would not be mutually beneficial.  This means employees could be laid off or not hired in the first place.  Alternatively, price levels could simply rise to accommodate the increase in input costs, which means those to receive the higher wage will also see a rise in their cost of living.  Another thing to consider is that the more productive workers who make over minimum wage currently will lose their incentive to be more productive because it is very unlikely that they would make more than the new wage and thus would have little reason to be more productive than the less productive workers who are now making the same wages.

            Typically we think of jobs subject to the minimum wage as being entry level food service or retail jobs.  I contend that these types of jobs are not the type of jobs that people who need to be self-sustaining should be working.  If wages are high, employers look for more qualified laborers.  This means that students, young people, and underprivileged people, who generally occupy these low-level positions, may begin to be passed up for people with more work experience.  This is dangerous not only because it leads to high youth unemployment, but also because it can create a generational gap.  Since young people may not get into the workforce and learn basic skills, these skills will be non-existent when they need them to get higher paying jobs in the future.  We already have evidence of these problems being created by the issues youths face in Europe. 

            So, in summary, these wage laws will likely create high youth unemployment, less employment overall, less productivity, higher prices, or any combination in between.  So what could politicians do to raise wages without causing all of these horrible side effects?  The answer, I believe, is most to undo several key regulations they have already built upon.  Politicians could study the industries where the minimum wage is most prevalent and then attempt to make creating new businesses in those industries as easy as possible.  By reducing or eliminating things like licenses to sell food, zoning laws, or any other barriers that firms face in entering markets in order to make it as easy as possible for them to go into business.  If this approach worked, it would benefit literally everyone.  Businesses would fight for laborers, driving wages and employment up while simultaneously driving costs to consumers down.