Prominent on President Barack Obama’s to-do list this year is “Raise minimum wage to $9 an hour.” Why? Because, we are told, it will put more cash in working people’s wallets, thereby helping the economy get back in gear. Don’t be so sure.
Everyone agrees workers should be paid fairly for whatever they do. Everyone also agrees business owners should be able to profit. There’s a third group whose voice isn’t heard: consumers.
Should consumers be free to shop in places that give them the most value for their dollars? Of course they should. The resulting competition gives businesses an incentive to be efficient, delivering the best goods and services for the lowest price. Everyone wins.
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Labor accounts for some portion of every price because every business needs workers. But if they pay their workers too much, their prices won’t be competitive. Customers will go elsewhere, the business will close and people will lose their jobs.
Who decides when prices are fair? Consumers do. They vote by shopping, and prices reach a happy medium based on local conditions. Minimum wage laws short-circuit this process.
When the law tells businesses they cannot hire anyone for wages below $9 an hour or more, prices go up for everyone. The additional pay doesn’t come out of thin air. Customers end up paying for it.
Worse, since labor now accounts for a bigger portion of prices, business owners start looking for ways to use less labor. Technology that used to be too expensive suddenly becomes cost effective. A worker worth only $8 per hour will be forced out, legally prohibited from working, his job now done by machines or faster-working humans.
The end result will be 1) higher wages for those with jobs and 2) more people whose wages are zero because they have no job at all. Is this a worker-friendly policy? No. Like most government interventions, the result will be the opposite of what was intended.
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