by Mitch Kokai
Senior Political Analyst, John Locke Foundation
New Year’s Day brought higher minimum wages to 19 states, some of which were only the start of a succession of programmed annual hikes. The first day of the year also brought many assurances that such laws benefit everyone and harm nobody.
Well, almost nobody: The employer who pays a higher wage has less business income to spend as he sees fit. But what do legislators and city councilmen care about that?
Everyone should care about profits, since the first thing that any employer considers is how and whether to use profits to reinvest in his business.
One form of investment is to pay employees more, hoping that greater reward will stimulate more work effort. Another form of investment is to buy new machinery to do the same work for no weekly pay.
Employers have a third choice: Pay themselves and their investors more and let the business stagnate. This may be the least bad option if the business faces a fading market or high taxes or oppressive regulation.
The editorial page of a widely respected newspaper recently celebrated an economic milestone: “Victories have been steady and significant in the Fight for $15, a nationwide movement for higher pay that began just over four years ago with walkouts by fast-food workers in New York City. In 2017, nearly 12 million workers will get raises.”
The editorialist and similar cheerleaders ignore the probability that the higher wage won’t be paid to all the workers who were working at minimum wages last year. Some will lose their jobs, as marginal businesses close their doors, or lay off their least productive workers, or automate some jobs, or move to more congenial jurisdictions.
The beneficiaries of minimum-wage laws can be seen working, and their income is taxed and tallied in the gross domestic product. But minimum-wage laws are not good for would-be workers, though such people are visible only on street corners and in government statistics about “discouraged” workers. When they do work, they are off the books. As economist Milton Friedman said, “The minimum-wage law is a monument to the power of superficial thinking.”