Minimum Wage Minimizes Job Growth

Mark Skousen

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books.

Job growth has been the bleakest aspect of the seemingly never-ending Great Recession. It is not even keeping up with population growth, and more and more Americans are dropping out of the labor force (only 63% of all adult Americans now hold a job).

Artificial efforts to stimulate the economy aren’t helping. The latest dumb idea is to interfere with the labor markets and raise the minimum wage to $9, as California just did (the highest in the nation). The minimum wage will go up in two separate $1 increments. The first will bump the rate from $8 to $9 in July 2014, and the second increase, to $10, will come in January 2016. According to the Economic Policy Institute, about 3 million Californians are currently working for the minimum wage.

Assembly Speaker John A. Pérez (D-Los Angeles) disputed the idea that the minimum wage increase would put a drag on the economy. He stated, “A $10 hour minimum wage boosts earnings by $4,000 a year and will put $2.6 billion dollars back into the hands of workers,” he said. “This is money that will be spent at grocery stores, on school supplies and invested in education, and that ultimately strengthens the recovery and ensures California’s job market continues growing faster than the rest of the nation.”

There are several fallacies in Speaker Perez’s logic. First, he violates the Bastiat principle, named after the great French economist Frederic Bastiat for his essay “What is Seen and Not Seen.” Perez only focuses on what is “seen,” the increase in income of the minimum wage workers. What he does not “see” is the increased labor cost of the companies, which cuts into their profits and reduces their ability to spend.

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If Perez was right, why not increase the minimum wage to $20 or $30 an hour?

Second, he ignores the potential loss in jobs because of the increased minimum wage. All he sees is the boost in wages for those who keep their jobs. What he doesn’t see are the workers who are let go because of the wage hike, or workers who are never hired in the first place.

I remember when California Governor Arnold Schwarzenegger was criticized by economists for supporting the minimum wage hike back in 2008 to $8 an hour. His only response was “I met workers who got the higher wage and they loved it.” Of course, he never heard from those who never got a job after the new wage law went into effect (the “unseen”).

The latest study (July 2013) on the effects of the minimum wage, done by Jonathan Meer and Jeremy West of Texas A&M University, concludes “that job growth declines significantly in response to increases in the minimum wage.” Read the full study here: http://econweb.tamu.edu/jmeer/Meer_West_Minimum_Wage.pdf.

What’s the most disappointing about this labor legislation is that the legislators are ignoring the legitimate genuine ways to raise wages. I do an exercise in my college economics classes to make this point. I divide the blackboard into two sections (see below) and ask students to make a list of “genuine” ways to raise wages and another list of “artificial” ways to raise wages. Here’s what the two charts look like:

Genuine Ways to Raise Wages    

  • Ask for a raise
  • Help the business grow or save money
  • Get an advanced degree or additional training
  • Work for a more profitable firm
    (more profitable firms pay higher wages)
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Artificial Ways to Raise Wages

  • Raise the minimum wage by law
  • Raise the living wage
  • Join a labor union
  • Restrict foreign immigration (competition)

I guess it’s easier for legislators to instantly raise wages by passing a minimum wage law, than it is to encourage workers to become more skilled or for businesses to become more profitable.

You Blew It! Why is Congress Exempt from Obamacare?

At the Monday Meeting in New York, a standing-room-only crowd was told an incredible story about the Affordable Care Act, or Obamacare, that passed in 2010. The original bill included a provision that requires members of Congress and their staffers, and the White House and its staff, to be a part of Obamacare. It makes perfect sense that if the American people are going to be forced onto Obamacare, all government officials also should comply.

Funny thing, behind closed doors, the provision was removed at the last minute.

In early August, the Office of Personnel Management (OPM) issued a decision allowing members of Congress and their staff to retain their generous government contributions for health insurance when Congress enters the Obamacare exchanges.

“As ordinary Americans deal with the costs, the burdens, and dislocation of Obamacare every day, every powerful group in the country seems to get an exemption, and the latest is Washington, D.C.” Louisiana Senator David Vitter said.

Senator Vitter and other Republicans have endorsed legislation to repeal the OPM’s decision and specify that all members of Congress, the president, vice president and political appointees have to purchase health insurance on the Obamacare exchanges without the assistance of subsidies. It further would prevent all congressional staff from receiving any contribution to their health plans greater than what they could receive if they were not employed by Congress.

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My question is why hasn’t the media ever asked President Obama in a news conference this question: “Mr. President, shouldn’t you, your staff, and all members of Congress and their staffs be required to be a part of Obamacare just like the American people? Why the double standard? And would you support a bill currently before Congress requiring the White House, Congress and their staffs to be on Obamacare?”

I’m waiting…

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below.

Upcoming Appearance

O Come Crash the Party! Martin Truax, a long-time friend and senior vice president at Raymond James, is organizing a one-day seminar on Saturday, October 19, 2013, at the Westin Los Angeles Airport Hotel in recognition of the 1987 crash and my birthday. This is ideal if you live in Southern California, or for travelers who can fly into LAX and take the Westin shuttle to the hotel (only $109 a night). In addition to Martin Truax and me, speakers include Wellington Letter editor Bert Dohmen, Washington insider Floyd Brown, money manager Adrian Day, #1 real estate guru Jack Reed, coin expert Van Simmons, Everbank President Frank Trotter and Global Market Development President Jeff Phillips. The price is only $99 per person, with $50 for additional guests, for this one-day conference. Note: This seminar is limited to 100 attendees and is filling up quickly. For more information, go to www.lainvestmentconference.org. To register, call Steve at 678/333-5361, or email lainvestconference@att.net.

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