I can’t believe we’re still arguing about the minimum wage. Analyses like the [one in the video below] are so clear. The economic realities are so obvious to anyone who is intellectually honest. But the “living wage” claptrap has succeeded in obscuring the truth about the unintended consequences of that failed policy. Whatever you think about the prospect of someone earning $4.00 an hour, it’s better than earning nothing at all and producing nothing at all.
We’ve discussed the minimum wage on this blog before. So I want to deal with a related question: if one wanted to find an economically sound set of policies likely to increase employment, what tools does one have available?
No minimum wage – Given the above analysis, of course, the first thing we’d want to do is let wages find a market price. That may not be fool proof, but more than likely we’d have more jobs available to more people if minwage laws weren’t distorting the U.S. labor market. It’s very difficult for competiting companies to get the right margins if they’re hiring U.S. labor, which is artificially inflated. In short, if you want to be able to hire more Americans, let them work for the market wage. (Yes, some of these wages may be low, but they’d be better all around than an army of unemployed teenagers receiving government benefits, for example.)
Lower corporate taxes – Reduce them to zero if necessary. There is no reason we should be taxing capital and productivity when those are bases of economic growth. Many companies move offshore because the U.S. has the highest corporate taxes in the developed world.
Reduce and streamline regulations – Many companies move labor and capital (and thus jobs) offshore because the regulatory climate in the U.S. is simply out of control. Often, the regulators have been captured by incumbent firms and the only way to compete effectively is to leave these shores.
Instead of applying bad economics (protectionism) to already bad policies, let’s do what’s necessary to return to growth. With growth, jobs follow. And remember: jobs cannot be ends-in-themselves. When we start to think of jobs as the ends of policy, that’s when we get policies that, paradoxically, are impediments to growth.