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President Obama's Minimum Wage Hike Proposal Will Harm The Poor

In Tuesday's State of the Union Address, President Obama proposed raising the federally mandated minimum wage to $9 per hour, a 24% increase over the current mandate. In a subsequent conversation, my friend David Guenther of the Texas Public Policy Foundation made a good point about the effects of this if it were to come to pass:

Regarding the President's $9 minimum wage proposal, what he doesn't get (and seems intellectually incapable of understanding) is that if you have a robust economy that is creating lots of jobs, a minimum wage is irrelevant. When Austin's unemployment rate has been < 4%, employers offering minimum wage can't find workers. Who gets paid minimum wage in the Permian Basin? In Eagle Ford? In North Dakota?  Case in point: when our unemployment rate was below 4% [in Texas] before the dot-com bust, there was a barbecue joint by my old apartment that had to advertise for $10/hour plus health insurance to find cashiers. As I recall, the minimum wage at the time was $5.25.

This is a point often ignored by those who advance the theory of social justice. As a devoted demand-sider, Obama is incapable of viewing the world from the perspective of an employer. He simply assumes that businesses can absorb the higher labor costs because they make profits. This myopic view assumes a static business model, instead of a dynamic competitive model in which businesses are constantly changing, growing, contracting and competing with each other. It also follows from Nancy Pelosi's famous quote, "The best jobs plan is a welfare check." This is the belief that if we simply unlock the money (i.e. redistribute) from the greedy profit hoarders, the economy will take off when all that money goes into circulation.

Of course, this is not how the real world works. Artificial creation of new expenses for businesses, whether they be in the form of Obamacare mandates, minimum wage hikes or higher taxes, will cause business expansion to slow. This means that fewer jobs will be available - the net effect being the opposite of the intended benefit. This will lead to LESS money in circulation and MORE hoarding of capital.

The minimum wage is also anti-competitive from another angle. The minimum wage doesn't allow workers to compete for jobs in lean times. If I were in dire straits and needed ANY job to feed my family, I might be willing to make sacrifices in my living expenses and take a lower wage job, or to offer my services to an employer for less than the next guy. The minimum wage is just as anti-competitive and socialistic as wage caps.

Back to David Guenther's point, that in a strong economy the minimum wage would be moot. Even in a bad economy, the data show that the minimum wage is largely irrelevant. According to Mark J. Perry of the American Enterprise Institute,

The notion that there are millions of full-time workers struggling to raise a family, but are stuck in jobs paying the minimum wage for long periods of time is more myth than fact.  Almost all full-time workers (99.4%) are earning more than the minimum wage, and almost all full-time hourly workers (98.3%) are earning more than the minimum wage. Most importantly, the fact that more than three out of four teenagers (77.2%), who are the least skilled and least educated group of workers, earned more than the minimum wage in 2011 would suggest the minimum wage is mostly an entry-level wage for beginning workers with no skills. The reality of the labor market is that even a large majority of previously unskilled teenage workers are earning more than the minimum wage as soon as they acquire minimal jobs skills and work habits, and can demonstrate their value to employers.

Note that the data cited were from 2011 - the depths of the Obama recession, when unemployment averaged over 8%.

The bottom line is that Obama's proposal is yet another solution in search of a problem, much like most of his policies. That is, of course, unless your goal is to fundamentally transform America.

Joy Radford

Obama is 'capable' of viewing the world from the 'peoples' perspective,,,he is the 'only' hope for all people ,,,except the few remaining , Mitt Romney types,,,....Obama has brought light and hope into this country. I would love to see all the Republicans, Mitch McConnell, John McCain, Lindsey Graham, in front of the line ,walking down the steps of the capitol for the Last time, never to be heard from again. We need positive leadership,,,,NOT the old-white-man theology!!

Kelli Lasley Brochon

The person filled with hate for an entire group of people is your der leader. I am quiet certain he is NOT interested in representing me. In fact I am certain he has nothing but disdain for me. When will this be obamas economy? In 5 years? How about 6 years? You know for the first 2 years they enjoyed a super majority, did they fix the economy? Did they even pass a budget? How much has been added to the debt? 6.6 trillion. How are you defending this? Now obama took great joy in castigating bush for adding 4 trillion to the debt in 8 years WITH 2 wars. Are we still at war? "Have we now sent boots on the ground" troops to even more countries since he was elected? The answer is yes. Is the patriot act still the law of the land? It is and now there is even greater over-reach and assaults to our freedom with NDAA and now the authority to kill Americans on what is now deemed the battlefeild, American soil. Any due process? Nope. Is GITMO still functioning? The answer is yes. How did you like your 2% tax increase, I am waging a guess that like I, you do not fall in to that $250K and above income earning base? Yet the tax cuts put into place by that evil Bush for the majority of wage earners, the poor and middle-class were just revoked. By the way, I do think Bush was quite evil with the patriot act and the 2 wars being faught for the elite bankers to create more wealth, but NOTHING has changed. In fact obama is funded by the Morgans, the Rockerfllers and Rothchilds and the rest of those in the oligarchy who, guess what? ARE STILL IN CHARGE!What has your messiah done exactly that has garnered your support? He is desimating the middle-class and growing the impoverished class at break-neck pace. He is destroying industry after industry. Personally I think Bush had the balls to tell the oligarchy to go get screwed on many occasions over many issues but obama? He is their YES MAN, and oh do they LOVE him. I personally am damn tired of the BS left/right paradiam and those who are too stupid to see it for what it is. I am really SICK of the hypocrisy of the left and the media who were screaming for congressional investigations over $3 gas, war, the assaults of due process and now they couldnt be more silent and THAT speaks volumns!

Joy Radford

Note: above re: Obamas recession: There was NO Obama recession; only George Bush and Dick Cheney leftovers (economic and otherwise) they, as I hope you would admit, led us into a war, killing thousands, that was based on their lies.
What is it about the Republicans,,, perhaps you can explain it to me, do they actually believe their constant 'stream' of false statements, re-inventing history and facts as they stand? Just curious.....
I realize it is pointless to have a reasonable discussion with people of certain
leanings. Most of the republicans are so filled with 'hate and jealousy' toward Obama, they seem really miserable.
Incidentally, I am a white woman, senior citizen, and I am d_____tired of the
disgusting things going on in that party!!

LT1800's picture
Jeff Reynolds

Joy, your paean to your savior is touching, but you didn't address the points of the post. It's instructive for all of us to witness that your rebuttal is based on emotions, impressions and empty hope.