Free Bazaar Blog

In the make believe world of politicians as I mentioned in my last post, there are no consequences and the impossible is possible. One of the things like that is the issue of minimum wage. To understand why there will always be some bad effect of the minimum wage, engage in this simple thought exercise--
Imagine that minimum wage was increased to $100/hr. Do you think there would be some bad effects? The $100/hr increase has obvious and immediate bad consequences, while the $7 minimum wage has less obvious but equally real bad effects.

I will write more on this topic some other time, but today I just wanted to point out this interesting post from a small business owner in Arizona on the effects of the minimum wage on his business. Some quotes from Coyote's blog:

The annual increase is the third since voters approved the minimum-wage initiative by a 2-1 ratio in 2006. This year’s increase is 5 percent. At $7.25 an hour, the wage is up nearly 41 percent from December 2006 but still only about half of the state’s median wage of $14.25, according to the Arizona Department of Commerce.

Oh my God! You mean the minimum is still below the median? (Sorry, that is a bit off-topic, but I just can never resist making fun of journalist’s understanding of math and statistics).

In just over two years, the minimum wage is up over 41%. As a company that employs a lot of minimum wage workers in Arizona, I thought I would report on the impact to date...

Well, our labor costs are about 50% of revenues (we are a service business)... [So, due to minimum wage increase:]

• We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people. ...
• We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers. ...

David Neumark and William Wascher did a two decade long study on effects on minimum wage. And, guess what they found:

• They reduce employment opportunities for less-skilled workers and tend to reduce their earnings
• they are not an effective means of reducing poverty
• and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.

The authors argue that policymakers should instead look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.
But, of course some people will choose to ignore science of economics just as others choose to ignore science of evolution. Interestingly enough lot of times they are not the same set.