That’s not how the official headline reads of course. No, it says, “10 states to boost minimum wage.”
“Workers in Rhode Island will see their paychecks grow the most — by an average of $510 a year for the average worker, according to the National Employment Law Project, a nonprofit advocacy group. The state enacted a law in June raising its minimum wage 35 cents to $7.75 an hour. In nine other states — Arizona, Colorado, Florida, Missouri, Montana, Ohio, Oregon, Vermont and Washington — the minimum wage will jump between 10 and 15 cents an hour, translating to an extra $190 to $410 per year on average, according to NELP. The increases in these states are the result of state “indexing” laws that require automatic annual adjustments to keep pace with rising living costs.”
What happens when the government uses threats and punishments in the marketplace to force employers to pay more for labor than they would pay in the free market? The answer is obvious: fewer people get employed. So when the story claims that “workers” will see a boost in their pay, what it really means is that “workers who are not laid off will see their paychecks grow.”
There is no way to deny economic law. If the price of gasoline goes up, that means that people stop buying as much gasoline or the stop with other purchases. In the market, we have seen gas prices forced lower in order to entice more buyers. Wages are no different than any other price. If the price of wages rises, then we will see either increased unemployment or—if employers had been saving and planning to hire new workers—or a decision to put off or cancel such plans. There is no getting around the fact that unemployment will be greater if the cost of labor is greater.
Right now, unemployment is still at historic levels. It is hitting youth especially hard. This will have consequences for years to come as young people never gain the experience, skills, and work record that will lead to further and better employment.
Of course, these consequences will be “invisible” to the media. They will report on any increase in pay to workers as a benefit that was derived from this increase in the minimum-wage-law. The increase in unemployment—the increase in people who are not paid anything—will be treated as a separate problem, one that has nothing to do with the minimum wage law. The benefits will be ascribed to government action, but not the negative consequences.
We might ask ourselves why “the cost of living” doesn’t keep rising rather than becoming lower. Why is all the pressure upward? Part of the answer is the minimum wage law itself. When people aren’t paid as much they put pressure on sellers to lower their prices. For example, even though many people keep predicting energy prices will rise, they have actually fallen recently. One important cause of lower gas prices is simply that people buy less fuel at the higher price.
The worse consequence is how minimum wage law hurts the youth and the least educated. Not only are they not employed in the present, but their chances of getting employed in the future are hurt. Those who should now be building up a work history are not able to do so. Furthermore, those who are most needy are the ones most hurt by the price controls. As one economist pointed out,
“minimum wage laws decrease employment among unskilled workers and prevent them from acquiring the skills they need to climb the socioeconomic ladder. When the minimum wage increases, businesses respond by hiring fewer low-wage employees. The employees who keep those jobs are more likely to be teenagers from relatively affluent families than minority workers from poorer households.”
This is just common sense. This increase in the minimum wage law will simply magnify the hardships of the “Fiscal Cliff.”