Wednesday, January 10, 2007

More Minimum Wage

Washington Post:
"The House yesterday overwhelmingly approved the first increase in the federal minimum wage in nearly a decade, boosting the wages of the lowest-paid American workers from $5.15 to $7.25 an hour over the next two years."
I've written about the economic effects of the minimum wage several times here in the past. Instead of trying to add something new in view of the action by the House, I will point to what two others have recently written about the minimum wage.

George Will writes:
A federal minimum wage is an idea whose time came in 1938, when public confidence in markets was at a nadir and the federal government's confidence in itself was at an apogee. This, in spite of the fact that with 19 percent unemployment and the economy contracting by 6.2 percent in 1938, the New Deal's frenetic attempts had failed to end, and perhaps had prolonged, the Depression.

Today, raising the federal minimum wage is a bad idea whose time has come, for two reasons, the first of which is that some Democrats have an evidently incurable disease -- New Deal Nostalgia. Witness Nancy Pelosi's "100 hours" agenda, a genuflection to FDR's 100 Days. Perhaps this nostalgia resonates with the 5 percent of Americans who remember the 1930s.

[. . . .]

But the minimum wage should be the same everywhere: $0. Labor is a commodity; governments make messes when they decree commodities' prices. Washington, which has its hands full delivering the mail and defending the shores, should let the market do well what Washington does poorly. But that is a good idea whose time will never come again.
Frederic Sautet writes:
"Poverty does not result from a low price of labor (and artificially constraining it will therefore not solve it). The roots of poverty are to be found elsewhere (such as low labor productivity). Labor’s returns are influenced by human capital investment, but also by capital accumulation elsewhere in the economy. Capital accumulation and factor productivity depend on entrepreneurial activity and the division of labor (Kirznerian and Smithian effects). Thus the conditions for entrepreneurship and the division of labor are crucial to a growing economy and higher wages. Giving people the incentives to seize profit opportunities and to invest in their human capital via low taxation is the best way to reduce poverty in the long run. Minimum wage legislation cannot reduce poverty overall; it only masks it for a while."

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