What Really Happens When You Raise the Minimum Wage?

The Dems rushed through a raise in the minimum wage (which still has to get through the Senate and past the president). Why? Because many union contracts are tied to changes in the minimum wage, and thus their union overlords will continue to shower money into Dem coffers. In addition the unskilled and uninformed will think the Dems are helping them out and will continue to vote for them.

But what really happens when you raise the minimum wage? John Fund has some thoughts on that in the Wall Street Journal:

The law of supply and demand works in the labor market, too. If government mandates a higher minimum wage, some workers will get a raise. Some. But something else will happen. Employers will hire fewer low-skilled workers. Others will let some current workers go. Some will choose not to expand their businesses. A few will close altogether. If an employer believes a worker creates only about $5.15 worth of value on the job, he won't pay $7, even if the government demands it.

Only 2.5 percent of all hourly workers make $5.15 an hour (or less; some jobs are exempt from the law), says the Department of Labor. "Minimum wage workers tend to be young."

Few of them stay at the minimum wage for long. As they acquire skills, their productivity rises and they command higher wages. According to a study done for the Bureau of Labor Statistics, "minimum wages have virtually no effect on the careers of most workers."

A small percentage of people do get stuck in minimum-wage jobs for a longer time. Since wages tend to rise with productivity, these are people whose productivity does not improve. A higher minimum wage will cost some of them their jobs. How does that help them?

Legal wage minimums kill all kinds of entry-level jobs, particularly those that would teach young people basic work habits and the benefits of effort. That's why there are no kids cleaning your windows at gas stations or working as ushers at movie theaters. Those jobs are extinct now because they are worth less than the legislated minimum. Who is helped by that?

Let's face it. The higher minimum wage is a feel-good law. A slight increase will pass because politicians and poverty activists will be able to say they have "done something" for the poor, while the victims of the policy go unnoticed. Those who can't find jobs because they produce too little are not likely to blame the law or the politicians who tried to "help" them. Then the resulting unemployment will justify expansion of the welfare state.

As George Mason University economist Walter Williams says, "It's tempting to think of higher minimum wages as an anti-poverty weapon, but such an idea doesn't even pass the smell test. After all, if higher minimum wages could cure poverty, we could easily end worldwide poverty simply by telling poor nations to legislate higher minimum wages."

If it's a good thing to raise the minimum wage to $7.25, wouldn't it be a better thing to raise it to $10...or $20? Why don't the Dems propose something like that? Because those who actually think about what they're doing know that what Fund and Williams are saying is true and that they can only make a political show with this bill because a serious hike in the minimum wage would likely be devastating to the very people who are supposed to benefit.