A minimum wage tutorial

A minimum wage tutorial

Wages should be left to the fair and free competition of the market and should never be controlled by the interference of the legislature.

  • David Ricardo
  • “Principles of Political Economy” (1817)

Raising Pennsylvania’s minimum wage is said to be a priority this legislative session among “progressive” lawmakers, including those in Southwestern Pennsylvania.

They argue that inflation has increased but the government-mandated wage floor has been stagnant at $7.25 an hour for the past decade. One proposal would raise the minimum wage to $15 an hour by 2024.

Of course, supporters of higher minimum wages invariably see them as a “benefit” and not the cost they are. Additionally, they see this “benefit” being covered by “the rich.”

But their fallacy is multi-faceted, as John Phelan at the Center of the American Experiment recently reminded in an elementary tutorial that should be mandatory reading for all public policy makers.

“Minimum wage hikes are frequently presented as a way for government to help people struggling with the cost of living,” the economist reminds. “But wages are prices as well. They are part of that cost of living.

“When government tries to increase these prices by decree, it pushes up the cost of living – the very problem it is acting to alleviate in the first place.”

Thus, government’s attempts to help “actually hurt,” Phelan notes. “This will, in turn, lead to renewed clamor for government to ‘do something.’” And on and on and on a vicious cycle is replicated.

(This is analogous to, say, pork farmers, stung by low pork prices, seeking government price supports, which, in turn, serve to either artificially maintain overproduction levels or even increase them. And what does that lead to, class? Why, depressed prices and repeated demand for price supports that perpetuate this perverted cycle.)

Additionally, Phelan reminds it’s not “big business” that bears the cost of minimum wage hikes but small businesses already operating on the thinnest of margins. (That’s because many of those larger businesses already, voluntarily and based on productivity and employee value, pay $15 hourly.)

“(I)t is not some mythical ‘robber baron’ who will be forking out to pay for the promises of the state’s politicians,” the economist says. “Instead it will be those business men and women and their customers who pay the price … .”

“Beneficent” Western Pennsylvania legislators supporting a higher wage floor would be wise to embrace Phelan’s tutorial. But, of course, they won’t.

Instead, these government alms-givers, convinced they know better than the fair and free competition of the market, will look for someone to blame – and never themselves – for the resulting fewer entry-level jobs, jobs with fewer hours and even fewer businesses.

Colin McNickle is communications and marketing director at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).