Do you live in Washington, California or New York, or any of the other 19 stares that will increase their minimum wages this month? If you are well then I hope you’re not looking for an entry level job, because you’ve just been priced out of the job market. Seriously though that’s what happens to low skill workers who aren’t worth the $10 or $11 an hour wage these states forced on employers and producers.
People forget that labor is a commodity or good, just like what they purchase. Employers will naturally pay top dollar for workers with marketable or valuable skills. The low skill workers turn to jobs like a cashier a McDonald’s to get their foot in the door and learn some skills that they can later take to other jobs and produce more for the rest of us to consume. When governments set wage laws telling an employer how much they can pay or can’t someone it affects the demand for labor. The higher the wage set the lower the demand for labor. If Joe blow businessman is being told he can’t pay less than $11 an hour he is going to find workers worth a $11 an hour. It is that exact scenario that has priced many workers who are low skilled out of the market.
What about increasing the purchasing power of the consumer? By offering that worker more per hour he has more spending power. There are nimrods that believe this. When there is a wage hike business deal with it in two ways, they cut back hours and staff, or they make the consumer cover the cost of the wage hike by increasing prices for goods. In actuality the purchasing power of the consumer and the worker are both weakened because they now have to pay more for a certain good than they did before the hike. This is why government’s need to be careful when crafting monetary polices. To often politicians and their eggheads miss one of the most important and harsh truths about economics; one cannot look at the effects of a policy on one group without looking at how it affects other groups in the nation. In this case, sure the worker benefits from a wage increase, but his boss suffers financially and so does the business he or she works for. Consumers also take a loss due to the increased price of goods. Young people or other low skill workers also suffer because they are priced out of the job market. It is for all these reasons that the government cannot and should not set wages.
If the government is unequipped then to set the wage who should? The voters? In my home state of Washington the voters shot themselves in the foot by voting for a wage increase they will soon experience the consequences mentioned above. If not the government or the voters than who? The market and or the employers and business owners. Hear me out on this one folks. As mentioned labor is a precious commodity for both the worker who will be selling his time (offering his service) to a business owner who values labor as well. Business owners, just like any other consumer will pay top dollar for any good or service that they value. In this case the good is labor. Workers who have more skills have more to offer a business owner and naturally are worth more to that employer. It is the inverse for the low skill worker who is not worth as much. The good news for low skilled workers is eventually they can increase their worth by acquiring new skills.
To often voters assume the worst of business owners, that they won’t pay their workers a decent wage. There could even be industry standards for what the wage should be. Some, no doubt might try to take advantage of this lack in governmental regulation to stiff their employees. However, Adam Smith’s invisible hand of the free market will soon find them, and they will likely suffer a lack in available labor and in business. In conclusion the government, nor the voters have the right to tell an employer how much they should pay their employees or even how to run their business, it is up to them and the market to decide.