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Minimum wage, or a minimum of common sense?
Heres a simple little rule to remember with respect to government and the economy: Theres almost nothing a government can do to stimulate real economic growth but theres plenty it can do to suppress it. As a corollary, its also demonstrably true that where you find an economy in trouble, you will always find government over-regulation.
The latter rule is certainly true in the case of Washington, prompting some in Olympia to give a nod to the former by addressing the states minimum wage laws.
Earlier this month, Washington state legislators began to consider several measures that would make changes to the state minimum wage standards adopted in 1998. Back then, as the result of a voter initiative, the minimum wage was indexed to the inflation rate a move that made a lot of sense politically but none economically, since pay increases based on anything other than market forces are by definition inflationary.
Simply put, indexing the minimum wage to inflation only serves to fuel more inflation. Which then forces another minimum wage increase and starts the cycle all over again.
Even worse, raising the minimum wage, while a boon to those workers at the bottom of the pay scale, can have devastating effects to the small businesses who employ them. This invariably leads to fewer jobs, which results in a stagnant economy for the whole state.
At a time when Washington state currently has the highest unemployment rate in the nation, youd think our lawmakers would be trying everything in their power to create new jobs and encourage business investment rather than stifle it. Instead, the National Federation of Independent Business, which represents 600,000 small employers nationwide, last week released a report saying Washingtons minimum wage policy has cost the state thousands of jobs since the standard was tied to inflation in 1998.
During that time, the states minimum wage has leaped from $5.15 an hour to $7.01, giving Washington the second-highest minimum wage in the U.S. It cant be a coincidence.
The politically correct take on the minimum wage, of course, is that people cannot afford to raise a family earning as little as $7.01 an hour. What that argument fails to take into account, however, is that the vast majority of those currently earning the minimum arent trying to raise families or pay mortgages. Theyre teenagers just starting out their careers by flipping burgers or sweeping floors, and most have better sense than to have children they cant afford to feed or house.
To be sure, there are adults parents, even struggling to support themselves on a minimum wage paycheck. But in all likelihood theyre already eligible for and collecting some other form of government assistance. What they need to escape this spiral are real job skills and an incentive to acquire them, not the illusion that they can achieve the American dream with no education or vocational training.
In any case, its hard to see how anyone is helped when employers are forced to lay off workers because they cant afford to pay the higher wage.
Consistent with Rule No. 1 above, arbitrarily raising the states minimum wage does nothing to improve its economic situation, and arguably makes things much worse. If that werent the case, lawmakers could simply raise the minimum wage to $20 an hour and cure poverty once and for all.
Government cant solve economic problems, but it can always make them worse by letting vote-buying politicians pretend otherwise. In Washingtons case, indexing the minimum wage to the inflation rate may not be only reason the states economy is currently suffering, but it clearly hasnt helped.
Its time to try something else. Like common sense.