Minimum Wage Follies

CascadeNewLogoBy Steve Buckstein

Fourteen bills have been introduced in the Oregon legislature to raise Oregon’s already high minimum wage or let localities do so. Apparently, some legislators believe that political laws can override the laws of economics.

In this case, the law of supply and demand tells us that raising the price of labor will lead employers to demand less of it. Those hurt will likely be less skilled, younger, and less educated workers who will find it harder to find jobs or will be let go from jobs they did have at lower wages.

Not exactly the outcome proponents foretell, but they may be OK with it because those harmed by their policy aren’t likely to blame them. They’re more likely to blame the employers who let them go or don’t hire them in the first place.

Proponents know that they have little to lose and much to gain politically by telling workers that they deserve to be paid more, and that it’s only greedy business owners standing between them and the higher wages they desire.

If legislators don’t commit the folly of increasing the minimum wage this year, a union backed group has filed an initiative to raise it from the current $9.25 up to $15 per hour. That will give voters the opportunity next year to commit the folly themselves.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy think tank.

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Posted by at 05:00 | Posted in Economy, Employment, Labor, Oregon Government, State Budget | Tagged , | 12 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    Too bad Oregonians fall for the pixie dust stuff like the minimum wage. The Congressional Budget Office, a non-partisan government research entity, projects a net loss of jobs from substantive minimum wage hikes; although the $15 range would be more than substantive and rather rash.

    Milton Friedman actually advocated for a negative income tax for those not making a living wage (or something akin to it). Today’s substitute is earned income tax credits, food stamps and health care subsidies. These are paid for mainly by the federal government, which can run substantial deficits currently without seeming negative repercussions from consequent inflation.

    Work is more than a paycheck, as it also has net positive value in giving the employee a sense of purpose and meaning. We should allow folks to negotiate their own compensation and flexibilities rather than imposing a one-size fits all top down dictatorial specification for compensation and flexibility.

    I’d rather such freedom combined with a safety net for those not adept or able to command a living wage. I do not fear the old company owned town model, especially given the diversity and mobility of today’s economy.

    Technology and globalization seem to have given us a secular glut of labor, depressing its price. These same forces are holding inflation at bay while the federal government runs substantial deficits through money creation. These factors might allow us to fund a negative income tax, especially if combined with rationalization of the current overly bureaucratic welfare state.

    Looking to the future, global population is likely to plateau in the middle of this century and in certain developed countries like Europe and Japan are already experiencing population decline. This could mean tighter labor supply, but then again it will also mean less material demand (flat to declining demand for things like oil). So, maybe the financing of a negative income tax in place of price rigidity (unfree) like the minimum wage can be assisted by federal deficit spending rather than attempting tax hikes on certain folks who often are adept at avoiding taxes.

    • wyane fecht

      Bob. Have you read any works by Henry Hazlitt? such as Economics in One Lesson or Ludwig von Mises, Human action?

      • Bob Clark

        Thanks for the references, Wyane. Will look into these.

        • guest

          Bravo you two, et al in support thereof.

  • Wayne Fecht

    Only the job seekers know the price of labor. Everyone should be free to bid on any job. Labor unions and minimum wage controls prevent the free market determination of labor costs. they are price fixes. As steve pointed out “raising the price of labor will lead employers to demand less of it”. The converse is true “as the price of labor falls employers will demand more of it”. potential employees must be free to bid on a job. As a contracting engineer I must bid on every job. I just lowered my price by approximately 12% in order to remain competitive. price alone may not have been the sole determining factor, but the potential employer weighed the skill level with the price of labor and I won. Freedom to bid for the job. Here are two links that are revelent to the argument against the minimum wage price fix. and this one
    politicians also have demands to stay in office they need your vote. This is how they buy votes. make promises for higher wages by decree (minimum wage), labor protection by unions, and it prevents lower cost labor from entering the market. These are the low skilled and unskilled who want to work and learn but are prevented by law from bidding on for job. They cannot ask less than minimum wage to get a job when they are willing and able to work for less. The people most affected are the unseen high school student who wants to work but cannot because of lack of skill that a high pay level demands.
    One question that should be asked of every body demanding free lunches (higher minimum wage) how much does the qage increase for those with demonstrated skills. I know people working in retail who have maxed out on the pay scale negotiated by the union. they have been working for the same retailer for more than ten years. the max wage is approximately $15 per hour. how much do you pay them when non-skilled new employee starts at what it took them to achieve after 10 years. Can you say price inflation? a case in point. In Seattle Ivars Restaurants have increased the wage to $15 per hour, increased prices by 21% and have stated it is not necessary to tip the wait staff. My daughter worked as a waitress in Colorado where the min wage for food service is about half the state minimum wage. she made nearly $20/hour including tips. all things being equal the staff at Ivars are losing money thanks to the $15 per hour minimum wage. Can someone explain to me what makes politicians so smart as to be able to determine the price of labor?

    • guest

      Well said and absolute spot on.
      The Left’s economic politcal nonsense must be stopped immediately if not sooner.
      Otherwise US is a New World goner deeper into pockets of chaos and anarchy.

    • Wayne, you ask what makes politicians so smart. I think you know the answer. They aren’t that smart; they just validate Acton’s Law which says that power is likely to corrupt and absolute power corrupts absolutely.

      • guest

        Bingo, bueno, bongo in the key of mockery bedeviling the Al Sharptongue overloard of sluggish escargot’n eerie. e.g., E.B. PERSwaded by a left wing bunch of jackasses befouling the air on the Oregon Catalyst Campus of kickiing out the analmal farm outer to elsewhere beyojnd state bonds. .

    • David from Mill City

      A properly set Minimum Wag is not a free lunch, it is a fair days
      pay for a fair days work. Expecting people to work for less than cost is the real free lunch.

  • David from Mill City

    Actually the Law of Supply and Demand tells us no such thing, but that is not the real problem with your argument and the other arguments being made here. Those arguments co-mingle three completely separate but related realities, two of which are not relevant to the minimum wage question. Those realities are, one, that locally, nationally and internationally there are currently more workers then jobs. Two, that there are in Oregon and elsewhere a large number of potential workers who currently lack the skills and employment history that would cause employers to desire to
    hire them. And Thirdly, that labor is not free, it costs the worker
    money to provide his services to an employer.

    It is the last reality that a minimum wage attempts to address. A properly set minimum wage means that a worker working full time, currently 40 hours a week, is paid enough to meet the basic costs of his or her existence. To put it another way, it makes make sure he is not working at a loss, that he is able to pay all the bills associated with maintaining a basic standard of living for a reasonably sized household. There are several quick and dirty ways to determine what a properly set minimum wage should be, one is to take the median rent for a one bedroom apartment plus utilities, multiply it by 36 and divide by 2080. This is based on the rule of thumb that only 1/3 of a persons income should be spent on rent and utilities. Another is to base the calculations on the maximum income a family of 4 can have and still be eligible for food stamps. These give us a minimum wage in the range of $14 to $16 dollars an hour.

    Establishing a minimum wage at this level will have impacts both good and bad on the Oregon economy. To the plus side, it means that Oregon workers at the bottom of the wage scale will have more money to spend which will stimulate local economies. It also means that the State of Oregon and the Federal government will no longer need to provide support in the form of SNAP benefits (Food stamps) and Medicaid to most full time workers, saving the tax payers money. On the down side it will require some businesses to rethink their business model, particularly those whose profits are based on the expectation that they will get their labor at less the cost causing some marginal business to decide to close. And in some cases there may be a rise in prices, which in turn may require further adjustments to the minimum wage as the economy adjusts to the new norm. These price rises may make it more apparent to the Federal government that the current method of determining the impact of price increases to Social Security and Federal Pension recipients and establishing cost of living increases need to be reformed. Unless one assumes that Oregon businesses are carrying a large number of workers doing unnecessary tasks, it will not have any great negative impact on the employment rate. It is possible that we may see a positive impact on the employment rate as some individuals currently working two or more jobs, go back to a single job, creating openings for more people to be employed.

    As to the argument that since some people are willing to work for less then minimum wage, we should not have one. There are also people willing to sell themselves or family members into slavery, is that a reason that our century old ban on slavery should be lifted? That we have people willing to work long hours at less then cost is a strong indicator that we need to take a long hard look at why that is the case and make those changes necessary to eliminate it. What a properly set minimum wage means is that an individual with a full time job can support himself and his house hold without outside support. This frees up those resources currently going to support him to help those not able to find employment and to address the current job shortage we are experiencing.

    The other two realities do need to be addressed, but not through the minimum wage. We need at the national level to address the impacts of automation and job exporting on the availability of full time employment and or other ways to insure that all Americans are able to maintain a reasonable standard of living. We also need to take a long hard look at the interface of our educational system and the needs of the job market. But as these are not relevant to a minimum wage discussion they need to be addressed at another time and place.

    • Ecomics redresser

      Defusing the population bomb still a top priority .

  • Carboy

    Hey, I am stocking shelves at Wally World and there is no way I can afford a new car on these wages. I need at least 19.45 per hour the way I figure it. So, hope these dem wackos keep trying to help me out. I have my eyes on a sweet Miata.

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