Lower The Minimum Wage: Opinion

TheStreet.com

NEW YORK (TheStreet) -- A minimum wage does more harm than good, and yet, we continue to hear from well-intended people that we should raise the minimum wage.

The latest call was in the Wall Street Journal, which had an opinion piece, "Time to Upgrade America's Miserly Minimum Wage" by Ralph Nader.

Proponents like Nader always start out their argument the same way: Divert the issue and pull at emotional strings by taking your attention away from the real issue. They choose a highly skilled and complete outlier in pay scale and crucify their hard work and the success that comes from it.

In the process, they essentially say the shareholders and board are too stupid to pay the CEO of their company the right amount of wages and they are overpaying. It's arrogant for Nader to suggest he knows better than the people who actually have their money on the line.

The first error I find with Nader's opinion piece is the statement, "President Obama finally broke his four-year silence on this issue by calling for a minimum-wage increase in this year's State of the Union address". That's not entirely true, but Nader can be forgiven for not knowing about Obama's delaying of American Samoa's minimum wage increases.


The Fair Minimum Wage Act of 2007 was to increase the minimum wage of American Samoa's workers 50 cents per year until the minimum wage was equal to the rest of United States.

As a result, some American Samoa's workers received an increase in 2009; however, shortly after, workers were laid off and unemployment increased to around 20%.

After realizing the impact of the minimum-wage increase, Obama then signed a wage increase delay until 2015. That also happens to be after Obama leaves office.

The U.S. Government Accountability Office reviewed the results of raising the minimum wage and found employment decreased as a result. For anyone who understands economics, this should not come as a surprise.

The impact on American Samoa workers may not match the thesis of raising the minimum wage effectively, but it does fit in reality well. Sadly, reality doesn't curb the desire for proponents to provide all sorts half-cocked reasons to push forward.

Proponents usually offer two main reasons why the working poor will be better off if the government decides for them what they should receive for wages.

The first reason is that you can't raise a family on minimum wage. After adding in all the government programs available, I'm not sure that argument holds water, but let's assume it's true for a moment.

Nader's argument assumes that everyone including an entry-level position at McDonald's and Wal-Mart should be able to earn enough to raise a family right from the start. Never mind a lack of skills or work history, in his mind if you're punched in on the clock, you should be able to start a family. The price consequences for consumers should be obvious.


The second argument is that wages should be set at an arbitrary "dignified" level. Again, this type of argument skirts around logic and tries to create an emotional reaction. From a government point of view, there should be nothing dignified or undignified about any wage amount. Someone is worth whatever someone else is willing to pay. Proponents forget that having a job, learning new skills, and self-improving are more dignified than the unemployment line.

What proponents actually need is Santa to be real. The only problem is that Santa isn't true, and there is no such thing as a free lunch. I think if we can work around the lack of Santa and free lunches, the minimum wage plan may have merits.

As long as we live in a world that doesn't include free lunches, the reality of a minimum wage is zero benefit for those earning it, and a negative benefit for everyone else. This isn't a zero sum game, and the amount of wealth available isn't static, it's dynamic. The history of central planning destroying wealth never seems to both those that advocate for it. They continue to focus on positive indications of success.

Nader points to a poll about Chicago and the raising of the minimum wage there. According to the study, a dollar increase in the minimum wage results in $2,800 of additional consumer spending. What Nader fails to point out is higher prices as a consequence for the increase in the minimum wage. Santa doesn't bring the extra $2,800 per year; consumers have to pay above market rates for the items they buy to make it happen.

Remember, this isn't a zero sum game, and higher costs will result in reduced demand. Lower demand is another way to say less employment. Job losses cause the gross domestic product (GDP) to decrease. In other words, a smaller pie to divide up.

If you want a higher standard of living for everyone, and I think we all do, a better option is to create a business-friendly environment that increases, not decreases, the demand for labor. A true increase in demand will increase the free market's rate for unskilled labor and create greater opportunity for the working poor.

Lastly, have you noticed the Naders of the world don't use sport icons as their comparison? It's harder to create an emotional response from people that may like the athlete. Logically, it makes for a better argument, but the last thing proponents for central planning want is for reason to enter into the debate.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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