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.
