Monday, October 16, 2006

Minimum Wage Shenanigans – Ohio Issue #2 2006

It’s nice to note that Ohio is on the verge of writing two pieces of economic insanity into the Constitution - Issue 3, “Gambling will make your kids smarter” and now Issue 2, “Putting Poor People and Teenagers Out of Work”.

Haven’t gotten around to the official ballot language on this yet, but mandating a 30% / $1.70 per hour increase (from 5.15 to $6.85, with a built in cost of living escalator) seems a bit on the extreme.

The Beacon article doesn’t provide much in terms of serious data or arguments. Price inflation? Probably not a big deal, with only 111,000 in Ohio working for the minimum.

Bigger deal: loss of entry level jobs. Every time the wage rate is artificially lifted, the marginal employees are at risk of losing their jobs. If you’re working for an employer, and providing $5.15 plus Social Security and other taxes for your employer, now providing $6.70 plus employer taxes of value is a much higher hurdle. Of course, if you were returning $6.70 worth of value, you wouldn’t have been making the minimum.

Result: stalled entry level job creation. Who loses? Mostly those with minimal skills or sketchy employment histories – teenagers and unskilled labor. Existing low end jobs are also at risk, especially in the event of a recession, expect even greater job losses at the bottom of the scale.

Apparently, the Beacon doesn’t consider the inevitable unemployment that will follow passage of Issue 2 to be a big deal.

More BMD on Minimum Wage here. And here’s Neal from Et Tu Bloge with an analogous situation – Wal*Mart legislation. The Becker / Posner stuff Neal links to is on the money here as well. Posner:

“The first-order economic analysis of minimum wage laws shows that they reduce employment by raising the price of labor; the Law of Demand teaches that an increase in the price of a good reduces the quantity of it that is demanded”

At least we’ll be able to pat ourselves on the back for claiming to help the poor, all while making more of them.

Update: link to Part II