Minimum Wage Hike Would Hurt Poor

JAN. 18, 2011


One of the first labor proposals (AB10) to be considered under Gov. Jerry Brown’s new administration, introduced by Assemblyman Luis Alejo, D-Watsonville, to increase the minimum wage, must be fought tooth and nail by progressives – those who claim to care about justice, equity and fairness for the weakest and most vulnerable in California.

According to James Buchanan, 1986 Nobel laureate in economics, “The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the presupposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that ‘water runs uphill,’ no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.”

In plain English, this means that as the price of anything increases, less of it is bought or used.

It’s also known as the Law of Supply and Demand. The reason it’s called a law, is that it’s applicable in every circumstance.

So increasing the minimum wage will reduce the number of jobs in the California economy, and unquestionably increase the ranks of the unemployed, already too high. When the minimum wage is increased, the workers with the least skills and capabilities will be laid off: their marginal productivity is less than the increased minimum wage.

Anyone seeking a job, like those already laid off, fresh graduates, returning veterans, mothers returning to the workforce, those with lower level skills who can be replaced by outsourcing, ought to be very concerned about being targeted by this new assault on the economically vulnerable in our society.

So, why would a Democrat do that? It’s puzzling.  Do Democrats seek this for other reasons?

Increases in the minimum wage accelerate a trend towards overseas outsourcing and a hollowing out of the low and medium-skilled U.S. white collar workforce. Even a service job like a personal assistant can be outsourced overseas, to someone who will happily work for $ 2 an hour instead of the $20 that may be asked in the USA. While a worker in the Far East may not be able to pick up the laundry, this same worker can easily make a reservation, balance a checkbook or schedule appointments and meetings.

More troublesome are the racist overtones of minimum wage increases. It so happens that blacks and minorities disproportionately occupy the lowest rungs of the unskilled workers on the economic ladder and will bear the brunt of the layoffs. So why are they being unfairly targeted with a minimum wage increase? It’s a question that progressive activists need to ask themselves.

Left unexplored are other downstream impacts – an increase in crime caused by increasing the number of unemployed youth and their feelings of helplessness and rage against a system that should be looking out for them. Or the probable increases in taxes to accommodate spending for unemployment benefits and services, police spending to combat crime, and for new prisons.

Now let’s see, who would vote for that?

John Brinkman is an economist who lives and works in the Bay Area

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