The Center for Freedom and Prosperity offers another entry in its Econ 101 series, this time about the minimum wage and the destructive consequences of government intervention in the job market. When Democrats insisted on passing the latest series of minimum-wage increases from $5.15 to $7.25, they claimed to have the interests of the poor and young in mind. However, the action destroyed those jobs normally accessible to those populations, even before the current recession began eliminating them. When the minimum wage remained below the floor of the market for entry-level positions, it did no direct harm, but the intervention by Congress in 2005 wound up hurting the low-skilled workers they claimed to champion:

It’s a good primer, but it may have been instructive to answer the question posed rhetorically at the end. Why don’t we just mandate a $100 per hour minimum wage?  The answer is that compensation becomes relative in terms of buying power to price, which is relative to value.  Artificially increasing wages forces producers to raise prices in order to cover costs.  Price hikes reduce buying power.  In the end, the market will find its equilibrium between the two forces (and many others), but not before it destroys a lot of jobs and capital, which makes the entire exercise pointless and counterproductive.

And here’s a better question to ponder.  If the minimum wage produces no benefits when the labor-market floor is above the current level, and it produces job destruction when Congress resets it to above the value of entry-level labor for business, what possible point is there in maintaining the minimum-wage system?

Tags: Democrats