Bluegrass Beacon: Minimum wage to alleviate poverty? You must be dreaming

Friday, June 28, 2013, 5 p.m. — Whether it’s failing schools, public-pension liabilities or an infinite number of other challenges plaguing the commonwealth, our nation’s poverty problem elicits one single tired solution from bigger-government apologists: throw more money at it. Note President Obama’s renewed push in his State of the Union address for once again raising the minimum wage.

Supporters believe poverty would disappear like a bad dream upon awakening if employers were forced to pay higher hourly wages. Perhaps these pillow-clutchers require that sort of fairy tale to rest easy when forcing such economic nightmares upon business owners.

However, we must not allow Mr. Sandman to lull us into a dream-world where raising the price of labor will magically have zero effect on employment.

The age-old economic argument against minimum-wage mandates still holds: products and services that cost more will be purchased less. If the cost of hiring workers artificially climbs by government fiat, then less labor will be “purchased” by employers; this means more unemployment.

Yet those sent to unemployment lines as a result are the very workers politicians claim raising the minimum wage will help.

Such attempts at helping some low-income Americans at the expense of others offer “a curious attempt at economic justice and a less than impressive poverty-fighting tool,” Indiana University Southeast economist Eric Schansberg once wrote. “Those who keep their jobs would be better off while others would lose their jobs. Sadly, the latter would lose what they most need—an earned income and an opportunity to build job experience and skills.”

Besides, poverty’s root goes way deeper than low wages.

Respected economists like the University of Kentucky’s John Garen have long maintained that the reason some families can’t pull themselves out of poverty is due to low-quality education, single teen-parent households and the ensuing lack of employment possibilities such complicated social issues create.

“I think a lot of the problems of persistent poverty come from young people – teenagers having children, not completing their education and, as a result, going on to poverty programs,” Garen said in his recent appearance on KET’s “The Price of Poverty” program.

He rightly added that the real path toward increasing Kentuckians’ standard of living is through increased worker productivity and the ensuing growth in the commonwealth’s economy.

All the minimum wage manages to do is redistribute wealth from one group (employers and displaced, low-skilled workers) to another (the low-skilled workers who managed to avoid being laid off). It does nothing to improve the quality of education, family relationships or any of the other fundamental sources of poverty.

And why must big-government types accomplish this brand of redistribution through minimum-wage mandates, which result in distorting side effects for the entire economy?

Wouldn’t a simple lump-sum transfer-payment from those with higher wealth to those with less do the trick? Or would that make the whole scheme too transparent?

What’s worse, noted economists Joseph J. Sabia and Richard V. Burkhauser reported in the esteemed Southern Economic Journal that 83 percent of those who would be affected by increasing the federal minimum wage to $9.50 live in households above the poverty line.

It might make for good politics with voters who live with their hands out, but the evidence strongly indicates that forcing a higher minimum wage on employers will neither solve the poverty problem nor benefit the group which supporters claim they want to help.

Arguments for the minimum wage have been defeated on so many fronts, yet some still somehow manage to sleep-walk right back toward these economic fallacies.

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.freedomkentucky.org/bluegrassbeacon.

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