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EDITORIAL

The minimum wage is based on a false premise

Thursday, March 21, 2013 - 12:01 am

Healthy competition would do more to increase wages

The minimum wage is a flawed policy based on a false premise, and the more it is raised the more apparent its defects become. Indiana officials seem to grasp that. Federal officials haven’t a clue.

In Indiana, the House this week voted down a proposal to raise the state’s minimum wage by $1, so it will remain at the federal minimum of $7.25 an hour. “We’re better off to let the market dictate this – let people decide what they’re willing to work for and let employers decide that they’re willing to pay,” said State Rep. Jerry Torr, R-Carmel. Exactly so.

President Obama, meanwhile, proposes to raise the federal minimum to $9, and some would go even further. If we’d raised the minimum starting in 1960 to match increases in productivity, says Sen. Elizabeth Warren, D-Mass., today “it would be about $22 an hour.”

A minimum is supposedly needed so all workers can earn a “living wage.” But that supposition is based on the premise that most people earning the minimum are breadwinners struggling to support a family. They are not. In Indiana, for example, about 93,000 workers earn the minimum, and most of them are young, part-time workers. The minimum wage is mostly for entry-level workers who will not be in such a job for all of their lives.

And when government increases the cost of hiring those entry-level workers, what will businesses do? They will hire fewer of them, and that will hurt unskilled workers, whom the government is supposedly trying to help, the most. If a company has to pay more, it is more likely to hire someone with experience or skills.

When a business’s owners find their cost of operation increasing, they will not meekly accept a smaller profit. They will get that money back one way or the other. They will employ fewer people, or they will increase the price of their goods or services.

And the cumulative effect is a drag on the economy – how could it not be? Businesses looking at the potential hike also have to worry about the increasingly heavy hand of government – everything from Obamacare to stricter environmental requirements. The bureaucrats seem intent on frustrating at every turn the businesses that could pull us out of our shaky economy.

The minimum wage seems compassionate (how dare those heartless Republicans oppose it!), but it is counterproductive. There is no arbitrary salary floor that is appropriate, and those who insist on such top-down control should be called on it every time. Healthy competition among businesses – hardly possible these days – can do far more to boost wages.