Friday, July 24, 2009

A Great Day for Labor Unions and Robots; A Crappy Day for the Rest of Us

Today, the minimum wage in the United States increased 70 cents to $7.25.

Please hold your applause.

Being a sane individual somewhat versed in basic economics, I oppose a minimum wage for basic economic reasons. But I could never do adequate justice to explaining the outright idiocy of minimum wage hikes, particularly in this economy, so I'll just do two things here:

(1) Provide you with a couple classic Cato articles and a great IZA study by guys far smarter than me on the minimum wage. The money line from one of the articles:
The idea that legislators can help low-income workers simply by mandating a pay raise is the height of hubris. While the minimum-wage rhetoric may sound good, the reality is quite different. Forcing employers to pay low-skilled workers a higher than market wage — in the absence of any changes in productivity — will decrease the number of workers hired (the law of demand).

(2) Provide you with a quick rundown of the winners and losers from minimum wage hikes:
The Big Winners: Unions (increasing the costs of non-union labor makes union labor relatively more attractive); Robots (ok, not exactly "robots," but devices like self-checkout machines that take the place of low-skilled, low-income laborers who work for big companies); and Businesses in high-minimum-wage states that compete with businesses in states with lower minimum wages (race to the top, economics be damned!).

The Big Losers
: Medium-sized businesses (hit hard by increased labor costs); Low-skilled laborers (replaced by robots, downsized outright, or paid even less at businesses not subject to minimum wage laws); American consumers (paying higher prices); and the US economy overall (see IZA study linked above).

Bystanders: Small businesses not subject to the MW increase (think your dry cleaner, unless you use Bibbentuckers or another big chain). Of course, these businesses now have less incentive to grow and hire more people. Fantastic!

Clearly the losers far outnumber the winners in this rundown. And yet....

Ahhh, politics.

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