On Wages

Posted on March 16, 2005
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All together now: an increase in the minimum wage will reduce the number of jobs.

As much as we might not like it, there are certain realities that simply cannot be reversed. The laws of supply and demand are an example. For all the chest-thumping about the indignity and lack of compassion in current minimum wage laws, they're for all the wrong reasons.

At both the federal and state level, legislators are considering raising the minimum wage with the honorable goal of increasing wages for America's poorest laborers. A federal proposal would raise the minimum 40 percent to $7.25 an hour from $5.15. A state proposal would raise it from the current federal minimum to $7.10.

These proposals gain steam because of the attractive sentiment that they will do something for those working for the minimum, giving a little more of a chance to gain independence and save for the future. The cruelty in our current laws, however, stem not from the low wage floor, but rather from the existence of one. Because of the immutable laws of supply and demand, a minimum wage actually reduces job. And as much as we would like to see hard-working minimum wage earners earn more, the alternative is no job at all.

Steve Chapman, in his column for the Chicago Tribune, briefly outlines some significant research on the subject, including the much heralded Card-Krueger study (which purported to find a net increase in jobs after a minimum wage hike). Chapman concludes, as have numerous economists, that the study was flawed.

At best, an increase in the wage floor can be neutral (harming some and helping others in equal proportion), but most likely is a net loss for the labor market.

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