Some lawmakers want to help many Idahoans by raising the legal minimum wage that employers must pay. The hope is that a higher price “floor” in the labor market will improve everyone’s standard of living.
That argument is used often by President Barack Obama and other Democrats. Congress has ignored Obama’s request to raise the $7.25 federal minimum hourly wage, which is also Idaho’s minimum.
But some state and local governments are moving ahead, often with voter support. Voters in Arizona, Colorado and Maine voted Nov. 8 to raise the minimum to $12 by 2010. In Washington, which already has the nation’s highest minimum at $9.47, voters raised it to $13.50 by 2020.
Despite this support, theory and evidence shows the hope is not realistic. Workers in low-wage markets bear the cost of these laws.
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Price floors are legal minimums on the price at which a good or service can be bought and sold in a market. When the price in any market is legally mandated above the natural equilibrium, the quantity supplied exceeds the quantity demanded.
When the minimum wage is set above the equilibrium wage in the labor market, a surplus of labor develops. That means unemployment.
Minimum wages are only meaningful in markets where equilibrium wages are already low. Thus, economic theory predicts that minimum wages affect the market for teenagers and other low-skilled workers most.
The latest federal data supports this. The national jobless rate is 4.9 percent, but it is 7.5 percent for workers ages 25 to 34 — prime working years. Unemployment for workers ages 16 to 19 is 15.1 percent, triple the national average.
When the price floor of a minimum-wage law creates a surplus of workers, some rationing mechanism comes into play. In this case, the workers who do get hired have higher skills. Our slow-growth economy is causing too many high-skilled workers to take low-skilled jobs.
The U.S. Department of Labor also reports that 5.9 million U.S. workers are in part-time jobs for economic reasons. Raising the minimum wage for these workers isn’t going to change their condition.
Don’t believe the promises. A new state or federal minimum-wage law promising better-paying jobs is too good to be true.