Raising the Minimum Wage

Posted on January 14, 2005
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Rep. Steve Gallardo (D-Phoenix), is proposing legislation, supported by ACORN and the AFL-CIO, to raise Arizona's minimum wage to $6.65.

The rationale behind such a proposal comes from the misperception that labor and business are two mutually exclusive adversaries. However, they are both part of the same market. To make up for the cost of higher wages, businesses must either hire fewer people, reduce compensatory, non-wage benefits, or pass on higher costs to consumers. For the minimum wage labor market this is especially true, where workers tend to have the least amount of skills and training, and a marginal increase in their cost of employment will likely have a negative effect on total employment. Moreover, the goods and services produced by low-wage workers are disproprtionately consumed by low-wage workers, meaning the higher costs passed on to consumers due to a minimum wage increase will end up burdening those same low-wage workers.

In the end, while well-intentioned, a minimum wage increase will most likely do the most harm to those it is meant to help. As Texas A&M University economist Donald Deere put it, "passing a law that forces people to earn a minimum amount in order to work seems a cruel policy in an already cruel world."

See the Cato Institute's Keeping the Poor Poor for an analysis of minimum wages.

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