Better paid workers don’t create jobs
The Los Angeles City Council has voted 14-1 to raise the city’s minimum wage to $15 an hour. The Nevada Legislature has not raised our minimum wage (currently $8.25). We see a growing surge of cities joining Seattle and Los Angeles in discussing or legislating minimum wage increases. Some conservatives, often in the protectionist wing of the Republican Party, support this.
We also have a real world laboratory experiment of democracy starting in our backyard.
For the last several years, the left, which absolutely believes in the validity of a scientific consensus when it comes to global warming, has abandoned that principle of accepting the science when it comes to the effects of raising the minimum wage. There is near unanimity among economists that when you make something more expensive, including the cost of labor, you will get less of it. Study after study confirms that minimum wage hikes cost jobs. But the new left initiative is to cherry pick a few new studies they claim overturns all this received wisdom. Essentially, they argue that workers paid higher wages will spend more, stimulating the economy and causing job creation.
Enabling those workers fortunate enough to keep their jobs to spend more will reduce overstocked inventories, but there is no evidence that significantly more jobs will be created. Capitol and entrepreneurship are required to create more productive jobs. That comes from savings, not spending.
What we have now is a showdown between two world views.
One world view believes in the primacy of wages doctrine. Karl Marx believed this. This doctrine holds that wages are the payment for production, and profits are taken, or deducted from wages. Thus it follows that capitalists and businessmen are exploiting workers by taking money for themselves from the pool of wages earned by workers.
The other worldview is that the engine of production is fueled not by wages, but by profits. When production occurs to produce profits, workers are not exploited. The wages they earn are actually deductions from the profits that the capitalists and businesspeople who have organized and managed a division of labor-based, complex economic enterprise earn. Workers therefore owe their wages to the capitalists and businesspeople (assuming the businesspeople have correctly judged the desires of consumers whose purchases will determine their success). Since wages are deductions from profits, economists talk about the cost of labor.
The workers who deserve the biggest wage increases are the businesspeople whose mental work designs the infrastructure that enables the complex long-tailed production whose products we enjoy today. The way to increase workers’ wages is to increase capitalist production, which will increase the demand for labor while simultaneously lowering consumer prices. This works far better than mandating wage increases without increases in production. Worse, this mandate occurs today in a regime of onerous taxes and regulations that actively discourages new production.
The sad fact is that the proponents of the minimum wage increase are cheap pikers. Up until now, they have tacitly conceded the job-loss issue by timidly legislating small increases that will affect fewer workers. Those workers who will be jobless are usually minority youth who most need the work, while Jimmy Middle Class is happy because his summer job is now earning him more for that new car he craves. By mandating double the market rate, based on this new left economics, the disruptions to the market will result in jobs fleeing Los Angeles for other jurisdictions even faster than they currently do. I predict the laws of supply and demand will prove stronger than even the Los Angeles City Council.