Tue, 25 May 2004

A Living Wage

Sigh. George Gonos, thinks that the minimum wage should be doubled. It's currently $5.15, and he's quoted in the May 24th Watertown Daily Times as saying that he would like it "set higher than $10/hour". He's listed as having gotten his PhD in Economic Sociology. I would call it instead Economic Fantasy.

Anyone is free to demand a living wage, of course. That's not what George wants. He wants employers to be forced to have to pay a minimum wage. The trouble with that idea is that no employer is forced -- no employer can be forced -- to employ anybody.

Go to anyone who employs people at the minimum wage, and ask to see their books. It's quite likely that most of them would refuse, but you'll find one who will agree. Double the wages of anyone making the minimum wage, and bring everyone else up to George's new proposed minimum of $10. Suddenly the books won't balance. You can be 100% sure that the employer will now be losing money. So go through the expenditures, looking to see what can be cut so as to make the business break even again. I can guarantee that there's only two places to get enough money to cover the new costs: employees wages, and prices.

So, one way to pay the new living wage is to fire half your employees. This is actually do-able. What you do is tell your existing employees "At the end of this work week, the new living wage law goes into effect. Half of you will lose your jobs, and the other half will continue to be employed. The ones who will continue to have jobs are the ones who have doubled the amount of work they get done in the same amount of time. Have a nice week!" Your employees will hate each other by the end of the week, but that's not your problem. This is, by the way, likely not the solution that George expects will happen.

The other possibility is to raise prices. The problem with doing this, of course, is that not all work has to be done on the spot. Some of it can be moved offshore. If employers suddenly have to double their wage expenses, equally suddenly offshoring will grow. Those companies will not have to raise their prices, and the companies that do will go bankrupt. This, too, is probably not what George expects. Even if businesses manage to raise prices without losing business (when has that ever happened?), who will have to pay those higher prices? Yep, the same people earning the new living wage. So, the calculations that went into the living wage will get completely thrown off, and it will no longer be a living wage. George seems not to have anticipated this effect.

I'm not sure what George expects will happen, really, but doubling the minimum wage will also require the imposition of tariffs on many imported goods, as well as new laws forbidding the exporting of services. Laws do not lead to freedom. Laws lead to more laws. Freedom leads to prosperity.

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