Mitt Romney has endorsed an increase in the minimum wage. He did not say what the increase should be. That sounds like someone thinking about running for office, since those who think that politicians should decide what others should be paid are not seeking economic fairness, they are seeking approval.
Those proposing an increase in the minimum wage, and also an extension of unemployment benefits, are less interested in the recipients of their beneficence than they are in having a political issue. Democrats introduce the bills and pray that they are defeated so they can bring them up again just before the next election. The Senate proposal last January was to increase the minimum wage for 10 months so that it would expire just before the November election. How convenient. The mainstream media will then wallow in their concern for the less fortunate and heap scorn upon the hard-hearted Republicans. That’s the role of the PR wing of the Democratic Party.
The president proposed an increase in the minimum wage from $7.25 to $10.10 an hour. Why be so cheap? Raise it to $26 an hour, as has been proposed for California. That’s about $52,000 per year putting the lowest income earners right in the middle of the scale. What then happens to those on the first rung of the economic ladder? There won’t be anyone there! Everybody will be above average and no one will be on the bottom. We can all agree with that can’t we?
Yet those who are kicked off the economic ladder because the company they work for cannot afford to keep them will not be cheering. They’ll be looking for the extended unemployment benefits.
Most of the minimum wage earners work in the food industry which has notoriously low margins. Many of those have supplemental income from tips, but some will be laid off. The Congressional Budget Office concludes that increasing the minimum wage to $10.10 an hour will result in 500,000 people losing their jobs.
When the government demands increased pay for certain workers, businesses respond by reducing hiring, cutting work hours and reducing benefits. These responses offset the positive labor market results hoped for. Some argue that companies can simply absorb the costs of minimum wage increases through reduced profits, but that’s rarely the case. Neither prices nor wages are so elastic that politicians can determine the “right” level. Markets do that.
Over half (53 percent) of minimum wage workers are under the age of 23. The average family income of these young workers is almost $50,500 per year. Less than one in five are sole breadwinners and nearly two-thirds of all minimum wage earners receive a raise within a year.
Labor unions usually lead the fight for minimum wage increases. While union members do not typically work for minimum wage, many unions have provisions in their contracts tied to minimum wage increases. Increases in union wages lead to more money in union coffers and that means more political contributions for Democrats.
As I said, this is not an economic issue, it is a political issue.
The extension of unemployment benefits has a similar dynamic. It makes politicians feel good and the media applauds their sensitivity. It also wreaks havoc on the economy.
Unemployment benefits were designed to provide 26 weeks of support for those who lost their job to find a new one. The new demand is for 99 weeks and it would have exceeded that had it not been for the Democrats in the Senate balking at the “negative atmospherics of lengthening the weeks of aid into triple digits.” Their concern for the recipients was tangential to their politics.
Though Nancy Pelosi famously informed the media that extending unemployment benefits was the best way to increase employment, nothing could be further from the truth.
Former Treasury Secretary Larry Summers has written that welfare payments and unemployment insurance are two of the main causes of long-term unemployment.
In July of 2013 North Carolina cut its unemployment program to 20 weeks. Over the next 6 months their unemployment rate dropped dramatically. A study conducted by economists at the University of Pennsylvania and the Federal Reserve Bank of New York, contends that the any economic stimulus from the extension of unemployment benefits is dwarfed by the economic damage done. North Carolina’s reforms are seen as a positive example for allowing federal benefits to expire.
Feel good politics generally hurts the targeted beneficiaries more than helps them. Ultimately the best welfare program is a job. Jobs come largely from the private economy, not generous politicians.
John Linder served in Congress for 18 years from Georgia. He and his wife, Lynne, have retired to a farm in Northeast Mississippi. He can be contacted at linderje@yahoo.com
