An essential fact of economics which our President does not seem to comprehend:
Wages and prices rise and fall together.
Wages, like every other element of the economy, are subject to the law of supply and demand because they are an integral part of it. Stagnant business and a consequential low demand for workers mean higher unemployment, and lower real wages (i.e., income vs. the cost of living,) for those who do manage to find work; a thriving economy and consequent higher demand for labor means upward pressure on real wage rates (again, wages vs. the cost of living,) with no "help" needed from the intrusive and destructive power-lusters in government. Labor is typically one of the highest costs of production in any business that depends on employees to function (as distinct from, say, a self-employed freelance carpenter.) Therefore labor costs determined solely by the market's supply-demand mechanism and which are allowed to fall as well as rise, allow for lowering one's product prices as needed (to gain a better position against competitors, flourish, expand, and offer more employment opportunities,) while any forced increase in the cost of labor must be recouped though raising prices. In a thriving economy, lower prices and business expansion mean an increase in the standard of living for people at all income levels; in an economy saddled with artificial, government-forced wage hikes, the price increases and further business stagnation that those wage and price increases cause mean a net decrease in the standard of living for all, particularly for lower-income workers.
So that's Fool's Gold element #1: Rising prices resulting from a forced, nationwide increase in labor costs translate to inflation, which negates the wage hike with a higher cost-of-living. The fool's-gold-peddling politician sees himself as "compassionate," while the workers who buy into the scam get nothing but higher prices and a net gain of zero.
Since higher prices also result in lower sales volume - whether it's fast-food burgers or used cars - the upshot is also: a slowdown in the pace of business, therefore reduction in the need for employees altogether. If you're selling product like crazy, you will need more employees and will be able to afford more employees. Conversely, slow business means less work to do, therefore layoffs, therefore increased unemployment.
That's Fool's Gold element #2: The higher prices that government minimum wage laws create slow down business volume, therefore reduce the demand for employees while increasing the cost of employing people - further increasing unemployment. That, in turn, means a heavier draw on the government's unemployment compensation tax dole, which in turn further drags down the economy and employment. Typically the fool's-gold-peddler turns around and blames the downturn on the very market that his wage hike has damaged - while the wage earners suffer needlessly in the meantime.
Minimum wage hikes also force lower-skilled workers out of their jobs, because a government-imposed higher wage threshold means that wages for lower-skilled or unskilled workers have been artificially forced up to the same level as wages for some better-skilled workers. These more experienced workers, whose wages used to be higher, are going to be more attractive for businesses to employ than lower-skilled workers, because now the labor cost is the same. Therefore, minimum wage hikes essentially wipe out the competitive advantage that lower-skilled workers had in being cheaper to hire than more experienced workers. If you're running a business, you want to hire just one person, and the government has just made an entry-level worker as expensive to hire as an experienced worker, which one would you choose?
That's Fool's Gold element #3: Government's forced wage hikes wipe out a crucial advantage that entry-level workers have against more experienced workers. The fool's-gold-peddling politician plays Santa and entry-level workers are all giddy with anticipation, but this wonderful new higher wage, instead of pushing more cash into their wallets, pushes them right out of their jobs.
If the President were interested in jump-starting the economy rather than destroying it completely, he would be taking the path of sound - but more difficult to sell - economic principle rather than flopping onto the tired failures of Carter-era Marxian economic policy. If he wanted to move toward economic prosperity, he would be urging Congress to lower the minimum wage, not raise it. What a lower minimum wage would do, almost instantly, is two vital things in reviving a government-stagnated economy:
First, it would lower one of the major costs of doing business, allowing businesses to regain strength, to expand, and to prosper along with their employees.
Second, it would reduce unemployment, particularly among people new to the workforce.
A wonderfully-high minimum wage is cold comfort to the scores of people standing in unemployment lines because nobody can afford to hire them to begin with - just ask any of the European countries with opulent minimum wage rates and... unemployment in the mid-20% range.
A lower minimum wage is the antidote to all of the detrimental economic effects of raising it, as outlined above:
- Since it's cheaper to hire employees, employment increases;
- Increased employment, in turn, creates a scarcity of unemployed workers, which translates to upward competitive pressure on real wages;
- Entry-level employees no longer get passed over for more experienced workers due to a blanket government income-equalization scheme;
- Since businesses have the flexibility to lower the prices of their goods and thus more effectively compete with their rivals, the cost of living becomes lower for everybody, while productivity, employment opportunities and abundance increase.
Contrary to the horror stories of Marx, even entry-level people who are working as a result of a lowered minimum wage gain increased earning power with every day spent on the job and every new level of skill attained. Every new feather in one's resume "cap" is marketable for a higher-paying position. That's how the marketplace works - when the Marxian Santa-Claus-wannabes in government are not playing with an economic mechanism they do not understand. One of the greatest frauds of Democrats on the issue of income, wealth and poverty is their evasion of the concept of Income Mobility: When government gets out of the way and allows businesses to flourish and employees to gain skill and experience, those employees - and employers alike - move up the income ladder. And get replaced by the constant stream of workers fresh out of school and new to the job market - who in turn start moving up, and so on.
Unfortunately, the government's addiction to playing Santa Claus means that such policies promising an easy buck but ultimately destroying employment and income alike for the worker, are very difficult to wean people off of, no matter how demonstrably destructive are their effects. So in addition to the fool's gold peddler, there is another fitting analogy in the minimum wage scam: The common drug pusher.
Related reading: "The Minimum Wage Forces Low-Skill Workers to Compete with Higher-Skill Workers," posted January 4, 2014 by Pepperdine University economist George Reisman, Ph.D. -