In his State of the Union Address, President Barack Obama called for increasing the minimum wage to $9 per hour. This 24 precent increase is actually considered “moderate” among many Democrats. Not to be outdone, in the Minnesota Legislature, Rep. Melissa Hortman, DFL-Brooklyn Park, and Sen. David Tomassoni, DFL-Chisholm, have offered a bill to raise the state minimum wage 38 percent to $9.50. And last year, U.S. Sen. Al Franken, DFL-Minn., called for increasing the federal minimum wage to $9.80.
If more is better, then why not $10 or $15 or $20? The answer, of course, is that more isn’t necessarily better, particularly in a time of less than full employment. Many unskilled workers end up losing their jobs.
While the federal minimum wage is $7.25, and Minnesota’s is only $6.15, it may make some sense to increase the state minimum to the federal level. Only four states, Minnesota being one, are below the federal minimum wage.
But if the federal level is going to $9 or beyond, then Minnesota legislators need to think long and hard about this move.
Nobel economist George Stigler, in a classic 1949 work, outlined the shortfalls of the minimum wage:
• Employment may fall more than the overall wage increase hikes pay, resulting in a overall reduction of earnings for those affected.
• As those sectors of the economy not covered by the minimum wage absorb workers who lose their jobs in the covered sector, wages may decrease more in the covered sector than they rise in the uncovered sectors.
• The effect on overall family income may be negative unless the fewer but better-paying jobs are allocated to members of needy families instead of to, for example, teenagers from families not in poverty. That in turn deprives young workers of crucial introductory job experience.
• Forbidding employers from paying less than a minimum also restricts workers from accepting less than the minimum, which may prevent willing workers from working at all.
It also can be argued that an excessive minimum wage hurts small business more than large business.In fact, large businesses that can absorb some increases, may even welcome the increase because it will drive some smaller competitors out of business.
In some cases (for example, the fast food industry), all citizens will pay the price when operators try to cover the increased cost of doing business with higher prices.
What’s more, the best employees may receive smaller raises if a business has to offer a large pay increase to its unskilled workers.
The fact is, the law is less effective at reducing poverty than other methods such as the Earned Income Tax Credit, and is more damaging to businesses than other methods.
It is amazing that many of the candidates for public office last fall who ran on the mantra of “Jobs, jobs, jobs,” have now turned around and offered the usual anti-job solutions to the nation’s economic issues.
Governor Mark Dayton has weighed in with his regressive expansion of the sales tax, which will hit rich and poor alike, pushing up the cost of almost any product created in the state, and making Minnesota’s businesses less competitive on the world market.
Excessively raising the minimum wage will too.