Let us pause for a moment to consider one of the building blocks of economics: the law of unintended consequences. All too often, human actions – especially government actions – backfire and harm the very people they are supposed to benefit.
Price controls are one example. Following a hurricane, people may see sudden increases in the price of plywood. However, if they successfully petition government to impose price controls on plywood to help them rebuild, they may be still more dismayed to discover a woefully insufficient supply of plywood at local stores. This happens because the mechanism of a free market is impeded from redirecting plywood from normal channels to where it is most needed in an emergency situation.
Or take minimum wage laws – another politically popular form of price controls – which impose not a ceiling price, but a floor price on the wages of a small minority of workers. The minimum wage applies to just 2.7 percent of all hourly paid workers in the United States, according to the U.S. Bureau of Labor Statistics. Here in Missouri, why not bump up the minimum wage to $12 an hour from $7.85 by 2023, as proposed in Proposition B to be decided in the Nov. 6 elections? Won’t that put more money in people’s pockets?
Answer: It will put more money in some people’s pockets, including many teenagers who are part of affluent families, but it also will have the entirely predictable effect of making it much harder for many young people — especially those from disadvantaged backgrounds — to find their first jobs and begin to accumulate the skills and experience they need in order to succeed.
This should be no surprise to anyone. If firms can no longer find profitable employment for unskilled workers bumped up to a higher pay grade, they will hire fewer unskilled workers and find new ways – through automation and other means – to do the same work.
A new study commissioned by the Show-Me Institute concludes the proposed minimum wage hike in Missouri is “a blunt antipoverty tool that may in fact do more damage than good to the poor.” The two economists who authored the study estimate that only 19 percent of the workers who would benefit from the proposed minimum wage increase in Missouri are living in poverty. The other 81 percent are in families above the poverty level, and “61 percent are in families with incomes more than two times the poverty level.”
The authors project the proposed minimum wage hike would reduce private-sector wage and salary employment in Missouri by between 10,000 and 12,000 jobs. The burden of this job loss, the authors state, would be “disproportionately borne by the young, the less educated and female workers, and among people employed in restaurants and grocery stores.”
Do we really want to saw off the bottom rung of the job ladder for those from disadvantaged backgrounds who are entering the job market for the first time?
Andrew Wilson is a resident fellow and senior writer at the Show-Me Institute, a free-market think tank based in St. Louis. He can be reached at firstname.lastname@example.org.
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