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Failure of the Minimum Wage

Posted by Steve Markowitz on February 5, 2014

One of the favored economic policies promoted by the Progressive Left has been the minimum wage.  It is also one of the best examples of the failure of interventionist policies in complex economies to obtain the desired goals.

The Left promotes the minimum wage, as it often does so many of its favored programs, with hard to define words such as “fairness”.  On their face these emotion-based arguments have strong attraction.  What could be fairer than raising wages of the lowest paid American workers?  If that emotion does not convince one, then the Left resorts to voodoo economics indicating that by paying more to these employees will increase their spending and then result in even more overall economic growth.  If only it was so simple.  If this logic had merit, then why not raise the minimum wage to $30 an hour?  Would that not lead to still greater growth?  The answer is obvious.

In earlier days of the minimum wage the Left’s argument could not be summarily dismissed.  Today, with the benefit of history, this argument is dead.  History has proven that the minimum wage has not lifted real wages for lower paid Americans.  In addition, a strong argument can be made that increasing the minimum wage results in less unskilled Americans, those most likely to be paid a minimum wage, to be employed.  For example, raising the cost of less skilled employees without increasing sales commensurately forces companies to employ fewer of these unskilled employees.  Eliminating this first stepping stone on the job growth path brings with it longer term consequences for those least fortunate in our society.

Placing a nail in the coffin of the argument relating to the overall benefit of increasing the minimum wage is the data included in the chart below plotting the real-time minimum wage over the past eight decades.  As indicated, while the minimum wage has increased throughout this period, the inflation adjusted minimum wage has been decreasing since the late 1960s and has been nearly stagnant in the past 20 years.

The graph does not indicate cause-and-effect.  However, it does indicate there is more at play with decreasing real earnings for Americans.  Dictating an increased minimum wage has proven ineffective in remedying the negative trend.  Add to this the fact that the percentage of Americans employed is at an historically low rate and we have a dangerous trend.  Expecting real improvement via government edict is akin to the belief in alchemy.

Why have middle and lower paid Americans lost ground in recent decades?  This is a complex issues that chapters could be written about.  However, it is likely that any unbiased study will confirm that governmental interventions in the economy have played a role in this negative result.

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