Minimum wage laws don't work

Minimum wage laws don't work.  Anybody with a calculator and an understanding of economics and logic can comprehend that.  So why do politicians keep pushing it?

Because a little knowledge is a dangerous thing.

Reading Perkins’ essay today reminds us of the potential that minimum wage laws hold for shaping a fair and productive economy.

Which do you want a fair economy or a productive economy?  And by the way, a mandatory minimum wage guarantees neither.

At the time of her writing, the nation was in the midst of the Great Depression. Perkins feared the destructive potential of the growing number of “fly-by-night” sweatshop operators attempting to gain an unfair advantage over their competitors by selling cheaper products made possible by rock-bottom labor costs.
These low-wage sweatshop operators were, in other words, cheaters. They offered cheaper products by taking advantage of workers who, in a period of record unemployment, had no choice but to accept whatever job they could get — in some cases, earning only 3.5 cents per hour.

I'm sorry, what made the advantage "unfair"?  And guess what?  If the market allowed employers to get labor for so cheap, it was because people were willing to work for so cheap.  What was/is a fair wage?  Something arbitrarily set by the government?

The purpose of a minimum wage law was not only to protect workers from abuse by their employers, but to also ensure fair competition by requiring that all businesses play by the same rules

the minimum wage peaked in 1968 and has since trailed behind the rising cost of living. In fact, the minimum wage would be well over $10 today if it had simply kept pace with inflation. Instead, it’s only $7.25 an hour — or just over $15,000 a year.

My god, do these economic illiterates look at what happens whenever the mandatory minimum wage is increased?  Like with most economic meddling by the government, it precipitates inflation.  Everyone's purchasing power is reduced because of an arbitrary floor to labor costs.  Businesses operating on thin profit margins either reduce their workforce, raise their prices, or both.  Since savvy business owners don't employ more people than they need, an increase in per-head labor costs often gets them looking at ways they can reduce the number of heads of labor to restore the product of the labor calculation to some form of equilibrium that allows them to stay in business.  Some businesses will fail because they can't break even, let alone turn a profit. Say a company has 50 employees making $7/hr.  The government bumps the minimum wage up.  Now everybody has to be paid $8/hr.  The company's labor costs have gone from $350/employee-hour, or $14,000 per 40-hour work week, to $400/employee-hour, or $16,000 per 40-hour work week. 

To be sure, the employees are happy.  Briefly.

A second, larger company, with say, 500 employees, has gone from paying $140,000 to $160,000.  Company A saw their labor costs jump $2,000 in one week, but Company B saw their labor costs jump $20,000 in the same week.  Company B decides to internationally out-source the bulk of its labor force to stay competitive.  They lay off 400 employees and find they can hire twice as many foreigners at their new overseas operation which cost them $50,000 to set up.  A week later, Company A is still paying an extra $2,000 per week for the same productivity.  Company B now is paying $20,000 a week, but saw their productivity increase about 55%.  Increases in productivity give company B flexibility in tempering the inevitable spike in its product's price to consumer.

Granted, these are simplistic numbers, but think about Company A.  Maybe it can't compete with Company B at the new labor rates.  Company B can essentially outlast Company A.  So, six months down the road, perhaps all 50 of the employees from Company A join the 400 from Company B in the unemployment line, where they aren't earning taxable income.  And as prices rise, the extra money the surviving employees of both companies receive is worth less.  Does that make sense?

Low-wage industries are now among the economy’s fastest-growing sectors, and some of the lowest paid occupations are expected to create the largest numbers of new jobs over the next several years. For many employers low wages are part and parcel of a robust growth strategy. As of last year, no fewer than 35 of the nation’s 50 largest low-wage businesses had posted profits that exceeded their pre-recession levels.
Meanwhile, the vast majority of businesses in the United States have yet to recover from the recession, particularly small businesses. A Gallup poll earlier this year revealed that fully 85 percent of small businesses still have no intention of hiring or expanding their business because demand remains so weak.

 I refer you to the above paragraphs as to why this is essentially the government's fault.  The labor unions in this country have learned that the old game of "chicken" only works against employers so long before the employers simply move their labor to a more friendly climate.  The unions priced themselves right out of business in many cases.  An in a textbook definition of insanity, the government thinks it can repeat the exercise with minimum-wage employees and then act surprised when the same result occurs.

The American people have noticed. According to a recent poll, more than two-thirds of Americans support raising the minimum wage to over $10 per hour. This support is behind a proposal by Sen. Tom Harkin, D-Ia., that would raise the minimum wage to $9.80 an hour, significantly raise the minimum wage for tipped workers (currently at $2.13 an hour), and provide for annual cost of living adjustments for both.

Not to disparage my fellow Americans, but the two-thirds of respondents to the poll need to see the world through a macro-economic lens.  Like with low-income people on welfare, you can count on them to vote for a continued supply of funds.  It's clear the author doesn't comprehend the economic impact of annual cost of living adjustments.  An apt analogy would be the dog chasing his tail:  It keeps him busy, but he doesn't achieve his goals.

Thank you, Government.