It will help no one. by Van Bryant, II
(libertarian)
Monday, December 12, 2011
This article is in response to the following Yahoo/AP news story posted today. If there is one subject that sets my blood boiling, it is this one. Simply put, the minimum wage idea is a shell game. It creates an illusion of improving living standards via larger paychecks, while shrinking spending power and employment opportunities in reality. The minimum wage grossly-distorts the economy, reversing and/or retarding the natural tendency of goods and services to reach an equilibrium in prices and wages. Supply, demand, and market trends are replaced with bureaucracy and politics. It freezes the impact of lowest-wage earners on the market: all further minimum wage hikes quickly return the earner to exactly the point they started. Even this ridiculous progressively-rising "living wage" implemented by the schmucks in San Francisco will ultimately hinder, not help the working class in the City by the Bay.
The Yahoo article starts by describing the plight of a local resident struggling to make ends meet. Aged 34, he works at minimum wage as a theater usher and security guard. While my mind boggles at the notion of THEATER USHERS making $9.92 an hour, I have to commend the man for at least working to make ends meet, and not acquiescing to a parasitical welfare existence. That said, I will respond to the following statement made by the man, exulting the upcoming wage rate hike ($0.32/hour).
"It (the wage increase) means that I'll have more money in my wallet to pay my bills and money to spend in the city to help the economy."
I completely disagree that this extra cash will positively impact the city's economy. If the man stays at these jobs, his impact on the city economy will remain the same.
There is a cause-and-effect relationship that the minimum wage-hike cheerleaders completely ignore. Businesses will have to off-set the increase of labor cost. Depending on the business, the price hike will be slight, easily passed on to the customer, barely noticeable. For more competitive markets with tighter margins, options will have to include cutting wages, even laying off employees. The AP article is nice enough to share the perspective of a restaurant owner who has to face these decisions in response to rising wage rates. His market is highly-competitive, with price a major factor in attracting and maintaining a fickle customer base. The owner is stuck between sacrificing customers via product price increases or sacrificing food quality via wage cuts. Personally, I feel more sympathy for the restaruant owner than the usher/security guard in the story.
Henry Hazlitt described economics as "looking not merely at the immediate, but the long-term effects of any act or policy for all groups." The living wage scheme for San Francisco is no different. All revenues the city will temporarily gain through more income being taxed will be off-set by those losing their jobs, and businesses unable to continue operating within the city. All revenue temporarily gained by the minimum wage earners will be off-set by increasing prices by all businesses and services operating in the city, or the loss of jobs due to shrinking margins. All businesses that survive the labor cost increase will recover their initial loses via price increases, wage and service cuts. New businesses and will be disincentivized to operate within the city, and existing businesses will find it harder to exist on slimming margins due to fewer consumers and ever-increasing wages.
On it's own, the living wage and minimum wage increases are a completely pointless exercise in proving the classical economists correct: you can never create a positive ocrrelation between quantity and quality of money. Add in the bureaucracy and other government schemes, and you quickly see a dismal trend regarding the future of San Francisco.
I wonder how long the usher/security guard will believe his 32 cent raise has had a positive impact on his livelihood?
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