The deleterious effect of minimum wage regulation

Few Studies on Minimum Wage

According to the Federal Reserve Bank of San Francisco, there have been FEW scholarly studies about the minimum wage, and those studies bucking the conventional wisdom have been roundly criticized. This sounds like ground RIPE for a monster doctoral thesis for economics PhD students. 2/3rd of the economics texts believe the minimum wage has more deleterious effects than positive effects. The studies that the Fed cited tended to show that the downward-sloping demand curve for low-wage labor was relatively flat, therefore inelastic. Meaning that an increase in the minimum wage may have the effect of decreasing the number of low-wage workers, but the job loss would not be great. What's so funny is that the leftists who scream bloody murder for increases inthe minimum wage are really harming those they seek to help: low-wage workers and poor consumers.

Illegal Labor and Exportation of Jobs

No one can deny that illegal migrants live in the US and they find jobs here. If there were no wage regulation, then the unfettered market would hire more people. I believe we see this in the much decried hiring of illegal migarant labor and the deportation of jobs outside the US. Businesses faced with the choice of hiring more expensive and highly regulated American laborers, or hiring unregulated illegal workers, or cheaper labor in another country are chosing to export jobs and hire ilegals. Since NOTHING happens without profit, there MUST be an incentive to hire illegal labor. The most obvious answer is that American labor is too expensive and too heavily regulated. I can think of no other answer. So, unless a study not only measures the few jobs lost due to the minimum wage, but also measures any corresponding deportation of jobs and hiring of illegal labor, it does not accurately record the negative effect of having or increasing a minimum wage.

Study Would be Massive

Seeing that even the Federal Reserve says there's been few studies on the effects of the minimum wage, and comtemplating the problem, has lead me to the conclusion that such a study would be a giant, and the EXACT effects of the minimum wage would be VERY hard to pinpoint. For instance, it is possible for an economy to outgrow the retardation caused by wage regulation. So, how is a leftist to be shown that the minimum wage retarded the economy when all economic indicators could point upward despite any weight from wages? Even if one were to compare the employment rate for low wage workers in a positive year where wages were not increased versus a positive year where wages were increased, it would be like comparing apples and oranges. Basically, you'd have to find years where the economy improved the same amount, or find years where the businesses employing low-wage workers grew at the same rate. There are a lot of ways to measure growth: net profits, an increase in distribution area, etc. Sounds like an impossible search to me. There are other ways to study the negative effects of wage regulation: find the number of businesses shutting down in a year where the wage was increased and ask those businesses that employ minimum wage earners if the increased cost was directly attributable to the business' failure, ask busineeses in the year that increase their prices if the price increase was attributable to a perceived increase in income by low-wage earners, etc. So, again, we can see what a MONUMENTAL study it would have to be. No wonder such a study has never been successfully undertaken.

Correlation Between Higher Income and Higher Prices

No one can deny that certain cities have higher standards and costs of living. In those cities, employees are paid more. As a result they have more disposeable income. Because they have more disposeable, they can far more easily bear the cost of increased prices on goods and services. Eager to maximize profits, sellers increase prices when the perception is that buyers will pay more. Hence, the higher cost of living in a place with greater wages. If we take this trueism and apply it to the minimum wage, one could conclude that there is an incentive for employers not only to recoup their losses by charging consumers more, but to increase their prices because they believe their own workers and others will pay more due to an increase in income. On the other side, once could argue that the impact of an increase in the minimum wage is so negligible that sellers will not increase prices. However, governments rarely just stack a single increase in the cost of doing business on employers. Quite often, legislatures, the executive, administrative agencies, and the courts all increase regulation. So, an increase in the minimum wage would be one of many pressures for employers to increase prices to recoup the losses engendered by the totality of new regulation of the market.

However, one may not deny that in economics, there is no action that doesn't result in a reaction. If a seller does not increase his prices, one of three things happens: he decides to just swallow the loss in profitability, he tries to pass on the cost to consumers, or he decides his endeavors are no longer profitable enough for his time and he quits. Most often, the businesses pass on their costs to consumers. Liberals believe this is a dandy solution...make everyone pay for their ideal market conditions. This is a problem of diffused costs and concentrated benefits.

Impact on Small Business

Many businesses in America are small businesses, struggling to get off the ground and be profitable. I've heard 90% of American businesses are small businesses, and it takes a number of years...I believe 10...to become profitable. In that initial 10 years, many owners fold up shop and call it quits because of thier losses. Undeniably, some businesses operate at the margin, holding on by a thread. Some of those marginal businesses employ low-wage workers. It stands to reason that those businesses at the margin can not tolerate increases in labor costs. One has to conclude that a certain number of businesses fold because of increases in costs. Some, like leftists, may not shed tears, but not because the fledgling small businesses are inefficient.

One other consideration, that may be unmeasurable, is the impact of a minimum wage or an increase in the wage on cost of entering the market as a new competitor. The minimum wage may so increase the cost of entrance that the formation of new businesses is retarded. With fewer new entrants, consumer choice is limited.

Leftists Substitute Their Judgment for Yours Through Government

Inevitably, the liberal response to warnings that the minimum wage cuts the American throat is that it is unconscionable for businesses to employ workers at less than a minimum wage. In essence, the leftist shrilly demands that his judgment be forced upon the market whether your conscience bothers you or not about labor.