In his State of the Union address the President made a passionate case for increasing the federal minimum wage by 24% to $9 per hour. He then taught us a little economics; he said, “For businesses across the country, it would mean customers with more money in their pockets.” suggesting that government (as opposed to the market) forcing up businesses labor costs will somehow benefit businesses. Please tell me you’re skeptical!
Here’s Don Boudreaux, on the best econ blog out there, offering a few links. He’s written volumes on the topic of late (his open letter to the President is featured below)—type “minimum wage” in the cafehayek.com search bar for more. And here’s one of my simple-minded contributions.
17 February 2013
Mr. Barack Obama, President
Executive Branch
United States Government
1600 Pennsylvania Ave., NW
Washington, DC
Dear Mr. Obama:
In this year’s State of the Union Show you called for the hourly minimum-wage to be raised from $7.25 to $9.00. That’s an increase of more than 24 percent. Because you trumpet this proposal as one to assist low-paid workers, you, presumably, deny that such a hike in the cost of hiring low-paid workers will prompt employers to hire fewer such workers.
In last year’s State of the Union Show you bragged of your administration’s increase in the tariff rate on Chinese-made automobile tires. This tariff increase, which averages 30 percent over three years, is explicitly designed to dissuade Americans from buying Chinese-made tires – an effect that you recognize and applaud.
Question: If a government policy that artificially raises the price of Chinese-made tires reduces the quantities of such tires that are bought, why does a government policy that artificially raises the price of low-skilled labor not reduce the quantities of such labor that are hired?
I’m told that you’re a man of science. I await your response.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030