Wages and their consequences

The Democratic-controlled Nevada Legislature has three bills to raise the minimum wage this session from $8.25 to $9, $11 or $15 an hour.

Many economists hold that minimum wage rate hikes cost jobs. The reason is that an employer cannot pay a relatively unskilled worker more than he produces in value. If someone is paid $8.25 an hour, that person must produce more than $8.25 an hour worth of product to keep his job.

Young, inexperienced workers ages 16-24 are the least productive workers. They often lack basic skills and work habits that they will learn through training and experience.

Employers can respond to minimum wage hikes in several different ways. They could lay off the least productive workers. They could cut down on hours. They can raise prices. They can invest in new technology, like robots, to replace the workers. They could close down ther businesses or move them.

All of these strategies are considered under the heading of “minimum wage hikes cost jobs.”

The Democratic Party is now telling us minimum wage rate increases do not cause job loss. Democrats insist that the higher wages paid to the remaining workers who have a job will be so great that raising the minimum wage will even increase jobs. They tell us because of the wage increase these workers will spend so much more money that more jobs will have to be created in order to satisfy the new spending demand.

But if this is true, why is the legislature debating how much the increase should be, and whether to spread it out over five years? If raising the minimum wage creates jobs, why are they quibbling over whether it should be raised to $9 an hour, or $11, or $15, and why not do it all at once? Heck, why not make it $25 an hour, or $50? Why not make everyone rich, and simply raise the minimum wage to $100 dollars an hour? We will have so many new jobs even Donald Trump will be jealous!

The unspoken truth is that raising the minimum wage by government decree raises the cost of labor by using state police powers to restrict the supply of labor. Reducing the supply of workers helps those lucky or connected enough to keep their jobs or be hired at the higher rate. Those workers do have an increase in their standard of living. Those who are not skilled or connected enough are forced into a larger labor pool to compete with other workers, lowering their wages potentially to zero.

The only thing that makes the labor of unskilled workers attractive, especially for minorities, is that they can sell their labor cheaply. Minorities are often the last hired and the first fired. Almost no one studies the forgotten workers hurt by government interventions. Some will turn to easy black market profits, and face arrest and prison as a result. This further reduces their lifetime earnings and harms families and neighborhoods.

The best way to raise everyone’s standard of living is not by forcing business owners to raise wages, but to increase productivity. Productivity is increased by free markets, including labor markets. Free markets, not central planning, do the best job of matching supply to demand. Recent studies indicate eliminating regulations, especially by cutting or abolishing federal and state regulatory agencies, can raise productivity over time so that the living standards of workers will double or triple. That beats arguing over a buck or two.

No matter how hard they try, legislators cannot vote away one of the most basic laws of nature, the law of supply and demand.