Wednesday, February 13, 2013

At a Minimum, Obama Wants to Raise the Minimum Wage

State of the Union addresses are nothing more than political pontification in which the President attempts to assuage people's fears, to illustrate the progress made by the executive branch, and to outline future proposals. One of the proposals in Obama's State of the Union Address was to raise the minimum wage from $7.25 to $9. Since I have previously expressed my views on minimum wage, this should be a reasonably short blog entry.

It shouldn't be all too surprising that I don't like the minimum wage. If the minimum wage were such a wonderful policy without tradeoffs, we should just legislate the minimum wage at $15, $20, $100, or even at $1,000 and be done with it. Alas, that's not the case. Minimum wage is another feel-good policy that is supposed to help the poor, which is an odd claim because minimum wage affects less than 2 million laborers in this country, so I don't understand how Obama thinks this will be such a big boost to the economy, or the incomes for millions of families when it in fact affects so few individuals. In fact, minimum wage causes higher levels of unemployment for unskilled laborers while making it more difficult for individuals, primarily young adults from 16-24 (a demographic experiencing record-high unemployment right now), to enter the job market and "work their way up the ladder." See this recent study by Neumark et al. (2013).

If you think that producers aren't going to adjust the way they do business because of a minimum wage increase, think again! Supply and demand undoubtedly plays a role in here, whether that is in terms of creating a surplus in unskilled labor, i.e., unemployment, or causing the producer to increase the price at which goods and services are sold. Unlike other taxes or wealth transfers, the minimum wage puts the entirety of the burden on employers, most of whom are small or medium-sized business owners. There are ways to bring about labor and economic reform (e.g., the earned income tax credit for the poor), but minimum wage is, at minimum, a fiscally irresponsible idea.

At this point, I'm posting a few videos. The first is by Professor Antony Davies to explain minimum wage............

......and this second video of the John Stossel show with Dr. Walter E. Williams explaining how minimum wage specifically hurts African-Americans.......

....and Milton Friedman, whose wisdom and knowledge is regrettably as relevant now as it was back then:

Here is another video about minimum wage:

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