(The experts say that a “good” blog will be between 300 and 400 words…Oh well!)
 
“The most terrifying words in the English language are: I’m from the government and I’m here to help.”   –Ronald Reagan

There is a tendency by the public to expect their Government to “fix” perceived politically expedient “problems” every time they crop up.  Or instead, for politicians to hastily come to the “aid” and “rescue” of those with a perceived “need.”

My First Job

Throughout most of my sophomore year during lunchtime, my job was to operate the deep fryer in the high school cafeteria.  (You couldn’t allow just anybody to perform such a highly-skilled, and frankly, highly-dangerous assignment.)  Each day I was dressed from head-to-toe in the appropriate spatter resistant clothing.  Back then (1978) you opened #10 cans of lard and spooned the “contents” into the fryer bin that was super-heated to several hundred degrees.  A wire basket with the pre-packaged flash frozen “shoestring” potatoes was then delicately lowered into the molten animal fat.  The spitting and sputtering and popping during the first few seconds was…well… horrific to say the least…this wasn’t a job for the faint of heart.  At precisely the right moment the wire basket was manually hoisted, by Me, the tater technician, from the blubber bath and hung from the back of the bin for a few seconds to drain off the excess…well…whatever it was that was dripping from those things.  I’m sure a good portion of what was in that #10 can never left the fries before it hit the student bodies’ stomachs…poor souls.  (Oh, I forgot a step…”lightly” salted to perfection—heart stopping good!)  Nonetheless, my fries were FAMOUS…people would come from…well…across the school commons for Frank’s Fries…and for nearly forty minutes straight each weekday, I made “french” fries…or freedom fries…or whatever we’re calling them today.  After nearly an entire school year at the fry machine, and following a relatively vigorous job performance review, I was moved UP to the “Coke Machine.”  (There were actually several different sodas available through this…well…relatively dangerous and complex high-speed carbonated fluid dispenser.)   The day I moved up…well…in all humility…my parents were SO proud…but…that’s another story for a different Blog…

You’re probably thinking at this point…Wow…what a great story!  But…what does this have to do with the minimum wage?   $2.70.  That’s what.  $2.70 per hour.  My first job in the high school cafeteria was a state mandated minimum wage of $2.70 per hour (actually $2.65).  Bamm…not only did I have a great job…I got $2.70 an hour to do it.  (Truth be told, I probably would have done it for free—sorta like working in the Legislature.)  What I didn’t know, but would quickly come to understand, is that $2.70 an hour doesn’t REALLY mean $2.70 an hour…FICA…State and Federal Taxes…unemployment insurance…work clothes expenses (the pair of my skateboarding shoes, Vans as I recall, ruined—spattered with…who knows what)…opportunity costs…get the picture?!  (I guess I didn’t realize it at the time, but, that was the first time, and only time, I’ve been a state employee…until now, as a “part-time” Legislator.)

For nearly thirty years I’ve worked in the private labor sector.  In the private sector (generally speaking), free market forces and principles dictate product prices and wages.  This is not true when government price-fixes labor inputs through creating what has been called a “minimum wage.”

Sound Economic Principles

From my days at the BYU, I’ve kept only a couple textbooks.  A prized possession is a rather dog-eared Sixth Edition of AMERICAN HERITAGE, An Interdisciplinary Approach, authored by Frank Fox and Clayne Pope.  I frequently refer to this volume for discussions regarding Government Philosophy, Economics, and History.  Among the pages of this book is a very targeted discussion on “Minimum Wage” (pages 311-313).

Fox and Pope explain:

The intent of a minimum wage, first established in 1935 and increased every few years, is to help poor workers have at least a subsistence wage and a decent standard of living.  What is the long-term effect of this legislation which was passed with the best of intentions?  Essentially, a minimum wage interferes with the free movement of a particular price—the wage.  Minimum wage legislation sets a limit or floor so that the wage cannot fall below a certain level.

Can we use the four basic economic propositions to understand minimum wage legislation?  The first three propositions concerning demand, supply and equilibrium are relevant.  In the labor market, the law of demand is relevant for businesses hiring labor.  As the wage rises, businesses choose to hire less labor.  They find it convenient and profitable to substitute machinery or skilled labor for the unskilled laborers whose wage has been raised by the legislation.  The law of supply applies to the individuals who are selling their labor in this market.  As the legal wage rises, more and more people choose to supply more and more hours of work.  The effect of minimum wage, then, is to reduce the quantity of labor that businesses choose to buy and increase the quantity of labor that individuals, especially unskilled young workers, wish to supply.  In short, a surplus of labor is created.  More people are looking for jobs than businesses are willing to hire at the minimum wage.  If the market were left alone, the wage would fall until the number of people who wanted to work would just equal the number of the people businesses chose to employ.  However, the minimum wage prevents proposition three, the achievement of equilibrium, from occurring because of the floor below which the wage is unable to fall.  Consequently, the surplus of labor continues.

The minimum wage law has two effects on the unskilled workers for whom the legislation was designed.  First, those who are able to find jobs work at a higher wage and are made better off by the minimum wage legislation.  Second, other unskilled workers lose their jobs or are unemployed because of the legislation.  They are clearly hurt by this action.  How are other groups in the economy affected?  Businesses are worse off because they are unable to hire unskilled labor at a lower wage.  Skilled labor benefits since business will now find it profitable to use a skilled laborer where they might have employed two or three unskilled workers had the minimum wage legislation not been in effect.

Unemployment rates are typically highest for minorities, especially young unskilled minorities.  Many economists believe that minimum wage legislation is partially to blame for the very high rate of unemployment among young blacks.  Businesses find that they can hire all the unskilled labor they wish at the minimum wage.  In fact, there is a surplus of applicants.  Since businesses can then choose among the various applicants, unskilled jobs tend to be rationed according to some characteristic other than wage.  Perhaps the businessman chooses his young relatives, or teenagers nearby, or teenagers that have the characteristics that he values in terms of the appearance and education and, perhaps, skin color.

The example of the minimum wage illustrates a pattern that is often replicated when the government prevents prices and profits from performing their function in the market economy.  The control of prices and profits creates distortion that is usually reflected in either a surplus or a shortage.  This distortion by the government makes some people in the economy better off, while damaging a larger but less represented group.  Finally, there are usually unintended side effects from government intervention in the market system.  These side effects often hurt the very groups that the government is trying to help.  (end)

I’m From The Government & I’m Here To Help

Governor Huntsman was quoted in the Deseret Morning News saying he didn’t think it was a bad idea that the minimum wage be raised from its current $5.15 per hour.  Huntsman said that Congress was looking at raising the Minimum Wage on a National level, and that Utah would keep its eye on Congress to see if they would mandate a certain minimum.

Utah’s rate of unemployment currently rests at approximately 2.5%.  Last year’s jobless-rate was 4.2% in Utah.  The US Labor Department reported recently that the National rate of unemployment is 4.4%.  The “natural rate” of unemployment is approximately 4%.  So, currently Utah is experiencing what could be termed “full employment.”  (A good article on this topic is found in a story by Jenifer Nii, of the Deseret Morning News.)  That means that there are more jobs than there are workers to fill those jobs. Just look around.  This is no more plainly illustrated than by the glut of “Help Wanted” signs found posted outside businesses statewide. 

The Real Question

With unemployment at an all-time low and with the current surplus of jobs available throughout the State of Utah, is it necessary now (or necessary ever) for Government (State or Federal) to intervene in the free market to adjust the price-input of labor by mandating a minimum wage increase?  Or, should we allow the free market to dictate labor pricing?

Remember, every time government mandates a program or policy, we incrementally give away one more liberty.

“What our country needs is not more liberty but fewer people who take liberties with our liberty.”  (Attribution??)