02.15.2013 0

Minimum wage increase: the bad idea that just won’t die

Photo Source: McNorthDakota.com

By Rick Manning It is being reported that in Williston, North Dakota, McDonald’s is hiring for $11 an hour, far above the $7.35 minimum wage.

Why the high starting wage?

Williston and cities throughout the energy boom states are thriving due to their willingness to allow energy development using a technique called hydraulic fracturing, and their economies are thriving.

The demand for labor at all skill levels is at a premium, and places like McDonald’s which provide the first job for many Americans, is forced to pay a higher wage in order to serve their customers.

This labor shortage versus jobs available is why the town’s unemployment rate is less than 1 percent and with the economy humming, entry level jobs requiring low skilled labor pay well, and that is the honest prescription to raise entry level workers wages, not artificially raising wages through government edicts that have no relationship to the local conditions and economy.

The honest free market approach to raising workers pay should encourage elected officials to do everything in their power to get government regulators out of the way so wealth is created, more employees are needed, and individual workers become more precious commodities.

In his broadly panned State of the Union address, President Obama spoke about the manufacturing boom that is beginning to happen in our country.

Let’s be clear, the federal government has only impeded that growth, which is almost entirely related to the lower utility costs created by the dramatic drops in natural gas prices to fuel the local utilities.  All thanks to the same hydraulic fracking phenomenon responsible for the economic miracle in North Dakota taking hold in rust belt states like Ohio and Pennsylvania.

The virtuous cycle works like this.  Lower energy costs create lower utility costs, which makes manufacturing raw materials like steel more cost effective in the United States rather than importing it from overseas.  From there, manufacturing of products like washing machines, becomes cost effective and very quickly things are made in America again.

This doesn’t happen due to central planning by Team Obama, it happens because Obama’s regulators get out of the way.  It happens because it becomes profitable to produce those products here at home.

Yet, Obama and his crew continue their war against inexpensive energy, and instead are trying to turn around the disastrous drop in worker wages that has occurred during their reign by artificially mandating wage increases.

These increases get paid for by cutting workers’ hours, forcing workers to be more productive or raising the prices of the end product.  In cases where the prices cannot be raised, employers have to foot the bill by delaying future expansion and deferring raises and pension contributions for other employees.

What Obama and his ilk never seemed to have learned is that wages are largely determined by supply and demand, and if there is a huge supply of potential labor, and the demand is small, the amount workers get paid drops, as it has during the past four years.

However, if the demand for labor increases, employers attempting to lure scarce labor resources to become part of their team, have to pay more money.

This is why skilled workers are typically paid more than unskilled workers, because the labor pool of skilled workers is smaller.

It is that simple.

Ultimately, when employers hire unskilled workers, they know that they will have to invest training costs into that employee to make the useful enough that they generate more income than they cost.  The higher the cost of that entry level employee, the more income they have to generate in order to pay for themselves.  If it is determined by a small business owner that the higher employee cost can’t be justified, the employee doesn’t get hired.

And that is why artificially created higher minimum wages end up hurting entry level employees the most — as the cost goes up for those jobs, those jobs become more scarce.

Contrast this with market based wage increases which the employer willingly pays to attract the needed labor force.

Many years ago, in the post John Lennon “Imagine” euphoria of the early 70s, it became fashionable for many people to say that socialism was a great ideal, that unfortunately it just didn’t work in the real world.

While the underlying notion of collecting everyone’s production and distributing it without regard to the value someone creates is at its core moronic, it still has its appeal amongst those who don’t understand that effort and value have to be rewarded otherwise they will be withheld.

It is from the same minds who idealize collectivism that we have the almost inconceivably stupid idea of raising the minimum wage to $9 an hour at a time when the employment situation amongst those who have a high school diploma or failed to finish high school education is at catastrophic levels.  And teen unemployment is even worse.

One wonders in what alternative universe do you create more jobs for unskilled or entry level workers by raising the cost of hiring them?

If Congress really wants to encourage hiring or unskilled labor, they should adopt a market approach to the labor force by rolling back the damage to our workforce done at the hands of regulators at the Labor Department, EPA and Department of Interior.

This simple step will reverse the decline of average wages, open up more opportunities for all those willing to work, and help reinvigorate our economy as a whole.

But that would not be seen as a government solution, so they would not get political credit for raising wages, even though they created the economic conditions for honest, wage inflation based upon value employees bring to the table.  And that is why minimum wage increases are the bad idea that refuses to die.  It is just too attractive to politicians, and the people who get hurt by not being hired don’t even know the reason why so they avoid the blame.

So, if politicians choose to support a minimum wage increase they should not stop at a mere $9 an hour, but instead should mandate that everyone make at least $400,000 a year, so we are all paying those new, higher taxes.

While seemingly absurd, there is no practical difference between the government mandating one wage for workers over another, and for that matter, if they can set a minimum wage, why wouldn’t they set a maximum wage?

But that is for another day.

Rick Manning (@rmanning957) is the Vice President of Public Policy & Communications for Americans for Limited Government.

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