Are liberals starting to learn the problem with artificially setting a minimum wage?
It seemed like a done deal that Baltimore would make it illegal to work for or offer a job for less than $15 per hour. The city's new mayor, Catherine Pugh, had campaigned as a supporter of raising the minimum wage, and the city council passed the measure to require wages in the city 50 percent higher than those in the rest of Maryland. But on March 31, in what many activists are denouncing as a betrayal, Pugh vetoed the measure.Not only are small businesses effected but also people seeking entry-level jobs find themselves cut out of the labor market because their skills are not sufficient to justify the higher wage. This has a disproportionate negative effect on young minorities trying to break into the labor force. In other words the people in Democrat districts are hurt the most.
"I want people to earn better wages," Pugh told the Wall Street Journal, which recently took an interesting local look at the issue. "But I also want my city to survive."
Pugh is a liberal Democrat. So is Ike Leggett, nearby Montgomery County's executive, who in January blocked a similar minimum wage increase in his famously liberal suburban Washington jurisdiction. What are these left-leaning politicians seeing that eludes so many of their comrades?
The problem is that in the real world, there are inevitably trade-offs to making labor artificially expensive through law. That's because a minimum wage law does not magically make labor more valuable, it brings not increase in wealth or productivity, so something else has to give. And that something is demand side of the labor market.
When the government decides an employer must pay more for the same amount of work and production as before, the laws of economics kick into action. Businesses with few low-wage workers may be unaffected, but in certain specific fields it will mean higher consumer prices, lower profits (and therefore less business formation), forgone business expansion, less hiring, greater comparative value in finding alternatives to hiring (such as robots), or all of the above.
The trade-offs may not always be large, but they are inevitable. There's no way to cheat the system of people acting from rational self-interest. Smaller businesses with smaller profit margins are hurt disproportionately by such government add-ons.