Congress is once
again considering amending its worst economic law, the minimum
wage. After decades of experience, everyone should know that
regulating the price of Labor is identical to any other price
control and an especially crude way to "fix" free markets.
Raising the minimum wage will hurt low-income workers, cost jobs,
and hobble the American economy. Congress should know by now that
bucking the laws of Economics does not work.
A minimum wage
operates by removing the lowest rung on the economic ladder - it
doesn't just take away current jobs, but also future job
opportunities. So how many rungs will Congress knock out this time?
Senator Ted Kennedy proposes raising the minimum wage by $2.10 an
hour. The Republican alternative from Senator Rick Santorum calls
for an increase of $1.10. So the two options on the table are a
mandatory price increase of 41 percent or 21 percent. The
consequences for Labor demand are predictable.
The goal of price
controls like the minimum wage is essentially to repeal the law of
supply and demand, but senators might as well try to repeal the law
of gravity. Worse than folly, disrupting the equilibrium of Labor
markets causes economic damage. Although the minimum wage will not
work according to economic theory-and it has not worked in
reality-what makes it especially tragic is that it hits poor
A survey published
in the Winter 2005 Journal of Economic Perspectives, an
academic publication, reports that 71 percent of economists at
America's top universities agree with the statement "a minimum wage
increases unemployment among the young and unskilled." About
one-third of the economists agree outright, and another third agree
with reservations. Think about that: the consensus among top
economists is that the very existence of a minimum wage harms those
who, according to its supporters, need it most.
The notion that
increasing the federal minimum wage will push up real wages is also
fiction. Average pay in America has been increasing steadily in
recent years, despite the fact that the minimum wage has not
changed since 1997. Real wages rise when productivity rises. Labor
productivity has gained 26 percent since 1997, and real earnings
for non-supervisory workers are up 7 percent. Non-wage benefits are
up as well, especially returns to risk-taking entrepreneurs. The
credit for these gains goes entirely to the workforce and American
business, not to micromanagement from Washington, D.C.
Let Federalism Work
If Congress really
wants to fight poverty, it will give Americans more market freedom,
not less. Start by holding hearings specifically about the minimum
wage, and ask why this failed policy is allowed to continue.
are the states not allowed the flexibility to set their own minimum
wages? States set their own speed limits, even though cars are the
same everywhere. So why can't states set their own minimum wages,
when other prices vary widely across regions?
minimum-wage law would allow each state to have a unique minimum
wage, with no limits on how high or low it could be. Let New York
try $15.00 an hour, and when its economy stagnates the example will
shine brightly for the other 49 states to learn from. When Ohio
sets a minimum wage lower than the current federal minimum of $5.15
and reaps a boom in growth, the world will take note. The whole
point of a federal system is that diverse states can experiment.
The system is designed for learning, and Congress needs the courage
to allow that experimentation.
A New Approach
Any vote to
increase the minimum wage should be cast with the full knowledge
that it will intentionally hobble the U.S. economy -- especially the
capacity of the economy to generate prosperity for the least
skilled among us. Many workers will get a nice raise, but Congress
shouldn't forget those others who will lose jobs and be unable to
Instead of playing
defense on the minimum wage, it is time for the members of Congress
who profess belief in the free market to try a new approach. It is
time to fight for an end to the federal minimum wage altogether.
Put its advocates on their heels and make them defend their
outmoded economic assumptions. Bring in the expert economists from
MIT and Chicago and Harvard who will force Sen. Kennedy to hear
that his policies are hurting the poor. Challenge the opponents of
competition to explain themselves.
minimum wage would be an outright disaster. Simply defending the
status quo on the minimum wage is a failure of imagination.
Ph.D., is Bradley Research Fellow in Labor Policy in the Center for
Data Analysis at The Heritage Foundation.