Minimum wage debate.

The minimum wage law is the black teenage unemployment act… the guaranteed way of holding the poor, the minorities and the disenfranchised out of the mainstream is when you price their original services too high.

Arthur Laffer

The minimum wage debate will rage in Washington during the early part of this year. It is a classic debate from the perspective of statist/altruists. Raise the minimum wage because it sounds like the “right” thing to do. As far as the Democrat Party is concerned, they will push hard on this issue, but as a skeptic I believe their motivation is less altruistic and more to make Republicans look miserly and mean spirited.

Studies abound showing that increasing the minimum wage has the expected effect predicted by basic economics. If you raise the price of something, demand goes down. Therefore, minimum wage earners lose their jobs and fewer are hired. Sadly, these are the individuals that have the highest levels of unemployment. The other side of this is that raising the minimum wage encourages employees with greater levels of skill to compete for those jobs. This further reduces the entry level positions for those who need these to gain sufficient work experience to move up the ladder of economic opportunity.

[Sources: This Burger-Making Robot Could Revolutionize The Fast Food Industry, by Alaina McConnell and The negative effects of minimum wage laws, by Mark Wilson of the Cato Institute]

While the aim is to help workers, decades of economic research show that minimum wages usually end up harming workers and the broader economy. Minimum wage laws particularly stifle job opportunities for low-skill workers, youth, and minorities, which are the groups that policymakers are often trying to help with these policies.

When the government requires employers to pay higher wages they will make adjustments that often negate the purpose of the legislation to increase the minimum wage. The employer will reduce hiring, cut employee benefits, reduce work hours (while demanding the same output) or charge higher prices. Unlike the altruist notion that it is the “right” thing to do and does only good with no harm, the truth is that there is no free lunch.

The altruists state that it is impossible to raise a family on the minimum wage. No one disputes that. But how many heads of households have minimum wage jobs as their sole source of income? Of the 1.8 million Americans employed at minimum wage approximately 49% are teenagers or adults under the age of 24 years. More than 62% live in families whose annual household income is two or more times the poverty rate. The average income of the family of a teenage minimum wage worker is $70,600. Less than 17% are below the poverty line.

The altruists want you to believe that the motivation for increasing the minimum wage is to alleviate poverty. Sadly, the overwhelming evidence from scholarly works show that increasing the minimum wage has no effect on poverty. Would that this information would stem the verbiage from the statist/altruists, but alas, no. They continue the drumbeat that they are helping reduce poverty.

A few facts will help you as you listen to this debate. The main reason Americans live in poverty is because the DO NOT HAVE A JOB (63.5% of poor Americans are unemployed), so, as they do not even earn the minimum wage, raising it is of no benefit to them. Further, when increases in the minimum wage result in higher prices, it is the poor that suffer disproportionately. So, again, we see altruists hurting the vast majority of the people they are trying to help while the “good side” of the program has a miniscule effect on poverty.

When progressive/altruists talk about minimum wage earners, they typically point to McDonalds. The “burger-flipper” is the poster child of the progressive/altruist argument that the minimum wage must be increased. The problem is that their poster child is about to lose their jobs anyway and only sooner if the altruists push the minimum wage higher. Allow me to introduce you to the Burgerbot!

The San Francisco-based robotics startup, Momentum Machines, is trying to revolutionize the fast food industry with an automated burger-making machine.

The company plans to launch the first ever “smart restaurant” where all of the cooking is done by robots. “Our alpha machine replaces all of the hamburger line cooks in a restaurant,” Momentum Machines’ website explains. “It does everything employees can do except better.” And at a fraction of the cost. That is why raising the minimum wage of a “burger flipper” just makes the Burgerbot all that much more affordable.

As fiscally conservative as I am, I would like to help the poor. However, there are two main avenues away from poverty: 1 – a job, and 2 – do not have children out of wedlock. The federal government needs to concentrate its efforts on these two facets of American life. My judgement is that the Obama administration has failed miserably on both counts.

And by the by, I predict the Republican Party will fold like greeting card and pass a new minimum wage level. Logic be damned – there is an election this year!

Roy Filly