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The Minimum Wage and Economic Reality (Why not outlaw high prices to help low income earners?)
Townhall ^ | 02/21/2013 | Steve Chapman

Posted on 02/23/2013 8:46:09 AM PST by SeekAndFind

President Barack Obama and Democrats in Congress want to raise the minimum wage to improve the lot of the working poor. But they've got the wrong idea. The problem is not that these workers earn so little; it's that the things they buy cost so much. I propose instead to outlaw high prices. No one, after all, likes paying too much. So let's put a stop to it. Gas is too expensive? Make it $2 a gallon, max. Bread and meat take a big bite out of the family budget? Poor people could eat better if they had to pay only $1 a loaf and $1 a pound.

Clothing, footwear, cars, you name it -- if the government held their cost down, life would be more affordable for low-income workers.

In his State of the Union address, the president said, "Tonight, let's declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty, and raise the federal minimum wage to $9 an hour." He might just as well say that no one should have to spend too much of their income on essentials. So why not limit the cost of those essentials?

Those acquainted with the laws of economics will immediately spot the flaw with my idea. When the price of something falls, demand for it rises, but supply does not. If you tell oil companies what they can charge for gasoline, they will reduce the amount they sell, creating shortages.

Likewise, if you put a price ceiling on bread and milk, or shirts and shoes, consumers will buy more of them, but stores will stock less of them -- or, if the price is low enough, none.

We all know we're more likely to go shopping when there's a big sale going on. Retailers don't try to entice customers by announcing price increases. The more expensive something is, the less people will buy.

But those pushing for a higher minimum wage pretend that labor is an exception to the rule. The administration can point to a few economists who claim to show that raising the minimum wage doesn't raise unemployment among low-paid workers. Dean Baker and John Schmitt of the Center for Economic and Policy Research in Washington insist that when employers are forced to pay higher wages, they reap large benefits, in the form of higher productivity and lower turnover.

This is the liberal equivalent of the conservative belief that tax cuts always pay for themselves. Anything so ideologically convenient just has to be true.

But if businesses came out ahead by increasing pay at the bottom, they wouldn't have to be forced into it. They would act on their own, in the relentless pursuit of profits. Instead, many employers have calculated -- based on real-world experience meeting payrolls and competing with rivals -- that higher pay for entry-level workers is not a free lunch.

Raising the minimum wage may indeed raise average worker productivity -- not by inducing existing workers to work harder or smarter, but by inducing companies to get rid of less productive workers. If you raise the floor from $7.25 an hour to $9, employees whose work output is less than $9 an hour will be let go.

Saying that a higher minimum wage would increase productivity is like saying that banning anyone under 6-foot-10 will make NBA players taller. It will, but not because anyone will grow.

Even the famously liberal Nobel laureate economist Paul Krugman has pointed out these realities. On the blog EconLog, economist David Henderson of Stanford's Hoover Institution cites a 1998 article in which Krugman ridiculed those who "very much want to believe that the price of labor -- unlike that of gasoline, or Manhattan apartments -- can be set based on considerations of justice, not supply and demand, without unpleasant side effects."

Obama argues for an increase by saying no one who works full time should remain poor. One fact he doesn't mention is that the great majority of people who earn the minimum wage are not poor. More often, they're middle-class teenagers.

Another likelihood, which he denies, is that while some workers will go from $7.25 an hour to $9 an hour, others will go from $7.25 an hour to zero. They won't be poor despite working full time. They'll be poor because they're unemployed.

Maybe this won't happen because the laws of supply and demand will be suspended. But would you want to bet your job on it?


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: minimumwage; prices

1 posted on 02/23/2013 8:46:15 AM PST by SeekAndFind
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To: SeekAndFind

“you vill pay!”


2 posted on 02/23/2013 8:49:38 AM PST by yldstrk (My heroes have always been cowboys)
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To: SeekAndFind

Didnt Nixon try that???


3 posted on 02/23/2013 9:00:35 AM PST by TEXOKIE (We must surrender only to our Holy God and never to the evil that has befallen us.)
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To: yldstrk

Far better for the House to pass a $20/hour minimum wage law.
Term it the “making everybody middle class act”

Pass it along to the Senate and dare them to put it on Baraq’s desk.


4 posted on 02/23/2013 9:01:03 AM PST by nascarnation (Baraq's economic policy: trickle up poverty)
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To: SeekAndFind

“...outlaw high prices...”

Isn’t that what Nixon tried to do with price conrols? That didn’t turn out too good for anybody. So, I guess Barry will try it!


5 posted on 02/23/2013 9:03:18 AM PST by bushbuddy
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To: SeekAndFind
"Clothing, footwear, cars, you name it -- if the government held their cost down, life would be more affordable for low-income workers."

Been there, done that. It doesn't work. Socialism sucks and so does this so-called President.

6 posted on 02/23/2013 9:06:17 AM PST by Richard Brandon Abroad (Hey people, it's different over here. Different people, money ... and news.)
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To: SeekAndFind
W = D/S, or in other words, average money wage rates equals demand for labor divided by supply of labor.

When W is increased, either S has to decrease or D must increase, or both can happen at the same time.

When S decreases, the unemployment rate increases

And when D increases, costs increase which can lead to decreased profits which can lead to decreased savings, which can lead to decreased investment, which can lead to decreased productive expenditure, which in the long run, can lead to decreased demand for labor, which can lead to decreased average wage rates and/or decreased supply of labor and higher unemployment.

So, an increase in wage rates has a negative effect on supply of labor and the employment rate by two pathways. But, its too much to ask that libtards be able to understand simple arithmetic.

7 posted on 02/23/2013 9:07:31 AM PST by mjp ((pro-{God, reality, reason, egoism, individualism, natural rights, limited government, capitalism}))
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To: TEXOKIE

Yep. He’s the reason there are a lot of conservatives who are Independent rather than Republican.


8 posted on 02/23/2013 9:15:24 AM PST by jiggyboy (Ten percent of poll respondents are either lying or insane)
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To: bushbuddy

Nixon Schmixon!

I detect a very large tongue-in-cheek here.

This is the Communist model and while prices were kept low, so were stocked shelves with the result nothing very much was available. Who in their right mind wants to work and produce when they get nothing, not even break-even, for their efforts?

Let’s keep an eye on Argentinea where price controls were imposed this month.


9 posted on 02/23/2013 9:18:02 AM PST by plangent
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To: SeekAndFind

There are at least two more rarely mentioned corollaries of a raise in the minimum wage:

- In addition to jobs simply going away, workers already at the proposed new minimum wage are now competitors, and in fact are better candidates, for the presumably easier jobs at that new minimum wage, further displacing workers trying to get that first job.

- As businesses pass on the higher costs of the new minimum wage, low-wage workers find themselves paying more for everything. As they have less disposable income to start with, this is another harsh inflation tax.


10 posted on 02/23/2013 9:21:13 AM PST by jiggyboy (Ten percent of poll respondents are either lying or insane)
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To: SeekAndFind

The hidden agenda is that many Union contracts, including goverment employee ones peg their compensation rates to the legally established minimun. Raising the minimum wage gives these Democrat supporting groups a pay raise that is both hidden from view and highly inflationary.


11 posted on 02/23/2013 9:22:03 AM PST by Forty-Niner (The barely bare berry bear formerly known as Ursus Arctos Horribilis.)
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To: SeekAndFind

Directive 10-289?


12 posted on 02/23/2013 9:28:35 AM PST by Night Hides Not (The Tea Party was the earthquake, and Chick Fil A the tsunami...100's of aftershocks to come.)
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To: Forty-Niner
The hidden agenda is that many Union contracts, including goverment employee ones peg their compensation rates to the legally established minimun. Raising the minimum wage gives these Democrat supporting groups a pay raise that is both hidden from view and highly inflationary.

Bingo! We have the winner.

13 posted on 02/23/2013 9:29:05 AM PST by AmusedBystander (The philosophy of the school room in one generation will be the philosophy of government in the next)
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To: SeekAndFind

That is a great idea,
set maximum prices at the federal level to ‘fair prices’. We all hate gouging and Anti-gouging laws work great banning expensive stuff from being sold to us even when we are staving or freezing. Fairness is the highest standard way above our needs or wants.

There is nothin the guberment cant fix with enough control and w smart guys like Obama in charge.


14 posted on 02/23/2013 11:40:10 AM PST by sickoflibs (Losing to Dems and Obama is not a principle! Its just losing.)
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To: TEXOKIE
Didnt Nixon try that???

Some people actually lost money in that. I didn't. I was in a union which negotiated a deal with the company whereby, when W&P controls were lifted, we received a retroactive pay raise, equaling what was lost, to be called a "bonus", Not a "retroactive pay raise".

15 posted on 02/23/2013 11:41:04 AM PST by Graybeard58 (_.. ._. .. _. _._ __ ___ ._. . ___ ..._ ._ ._.. _ .. _. .)
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To: bushbuddy
That didn’t turn out too good for anybody

For some of us it didn't turn out too bad - see my #15.

16 posted on 02/23/2013 11:43:42 AM PST by Graybeard58 (_.. ._. .. _. _._ __ ___ ._. . ___ ..._ ._ ._.. _ .. _. .)
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