by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Responding to the recent hubbub over fast-food workers’ plea for $15 hourly wages, the latest Bloomberg Businessweek informs us:
It’s more complex than simply doubling all wages. “Remember, not all workers would get a raise because [some] earn more than $15, and even among those who earn between the lowest wage and $15, the raises would range in size,” says Jeanette Wicks-Lim, an economist at the University of Massachusetts Amherst.
Much of the public debate, however, is focused on raising wages to considerably less than the much-hyped $15 an hour. Wicks-Lim and 99 other economists signed a petition in July to raise the federal minimum wage to $10.50. They say the increase in costs for restaurants would equal about 2.7 percent of sales. Wicks-Lim adds that companies could then make up the difference through price increases (say, a nickel more for a burger), reduced employee turnover, productivity gains, and slower raises for the highest-paid employees.
I’m no economist. But I’ve read enough about artificial price floors to know that they invariably lead to bad news. Roy Cordato explained why in a 2006 John Locke Foundation report on various forms of government price-control laws.
The problem extends to price “floors” as well as price caps, Cordato said. A government-mandated minimum wage is a price floor. “With a minimum wage, an employer knows he must hire only those workers who can generate productive output equal to the wage plus benefits,” he said. “Workers who don’t have the skills to generate that output won’t get jobs. The people who need low-wage jobs the most are priced out of the job market.
“In preventing very low-skilled workers from entering the labor force, minimum-wage laws deny them the opportunity to move up the economic ladder,” he added. “The government is denying a worker the chance to gain job experience that could help him earn a higher wage.”
You don’t believe Roy? Would you believe the Concise Encyclopedia of Economics?
Despite the frequent use of price controls, however, and despite their appeal, economists are generally opposed to them, except perhaps for very brief periods during emergencies. …
… The reason most economists are skeptical about price controls is that they distort the allocation of resources. To paraphrase a remark by Milton Friedman, economists may not know much, but they do know how to produce a shortage or surplus. Price ceilings, which prevent prices from exceeding a certain maximum, cause shortages. Price floors, which prohibit prices below a certain minimum, cause surpluses, at least for a time. …
… [P]rice controls almost always benefit a subset of consumers who may have a particular claim to public sympathy and who, in any case, have a strong interest in lobbying for controls. Minimum-wage laws may create unemployment among the unskilled or drive them into the black market, but minimum wages do raise the income of those poor workers who remain employed in regulated markets.