NCPA - National Center for Policy Analysis

THE REAL COST OF GOOD INTENTIONS

February 1, 2007

Democrats have been very vocal about the failing American economy even as they push for an increase in the minimum wage, illustrating one of the great ironies of the minimum wage debate, says Joseph C. Phillips on EURweb.com. 

In truth, despite the rhetoric, the economy is thriving: 

  • More than 7 million new jobs have been created since August of 2003 and the unemployment rate is below 5 percent.
  • Real wages have grown at 2.3 percent over the last 12 months, well above the average of the 1990's.
  • Over the last three decades worker productivity has more than doubled. 

The irony in all of this is that only a dynamic economy can put an upward pressure on wages, says Phillips.  Increased productivity drives innovation and the creation of new businesses, which creates jobs.  The idea that government can arbitrarily set the price of labor is politically viable only because of the dynamism of the American economy.

It is also the same dynamism of the economy that renders the minimum wage a dinosaur of our New Deal past, explains Phillips.  A thriving economy makes the minimum wage almost irrelevant as evidenced by the fact that wages for many low skilled jobs are currently well above the minimum wage even for illegal immigrant labor.

It is true that the absence of a minimum wage will certainly mean that wages for some jobs will fall below the previous federal minimums.  Those jobs however, were overpriced for their value and very likely would have been eliminated, says Phillips.  The best thing Democrats in Congress can do is to keep taxes low, resist the urge to heap regulations onto business and continue to stoke the fires of a growing and dynamic economy.

Source: Joseph C. Phillips, "The Real Cost of Good Intensions," EURweb.com, February 1, 2007.

 

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