Thursday, September 08, 2005

The economics of wages, revisited

The members of the California State Senate apparently were all sleeping during freshman economics.
The state Senate passed a bill Wednesday to increase the minimum wage by $1 over the next two years and tie future increases to the pace of inflation, though it faces a likely veto by Gov. Arnold Schwarzenegger.
On June 13th I posted this after a study was released that suggested that many San Francisco restaurants were moving elsewhere or closing altogether due to the high minimum wage law in the city:
The conventional wisdom for raising the minimum wage, or for having one in the first place, is to help the working poor. It's very appealing to suggest that everyone should have a living wage, however, it's just not that easy.

To understand why such a law is actually harmful to low-wage workers, consider the employers' alternatives. If, for example, an employer is required to pay a worker $9 per hour for work that he values at only $6, he/she has several options. First, the employer could fire the low-wage workers and replace them with more productive employees. Secondly, he/she can outsource to contractors or worse yet, outsource to foreign workers. A third alternative is to automate. An employer can also chose to hire illegal workers who seem to be plentiful and willing to work for lower wages and virtually no benefits. Finally, as San Francisco restauranteurs are doing, they can chose to quit business altogether or relocate to an environment that is more business-friendly.
Shouldn't there be some sort of continuing education requirements for lawmakers? Or, how about some minimum educational requirements?

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