The Cost of a Minimum Wage Hike

Increasing the minimum wage will raise the cost of labor in an economy that is hovering just above recession levels.

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If over the coming summer the black youth unemployment number exceeds 50 percent, then thank President Barack Obama.

Why? If he gets his way, and the federal minimum wage is increased to $9 per hour from the current $7.25, it will raise the cost of labor in an economy that is hovering just above recession levels. Higher labor costs mean fewer people get hired. Employers have to find ways to do more with less and look for other ways to economize. Unskilled workers get laid off, replaced by machines and higher-skill workers who are more valuable. Self-checkout lines appear in grocery stores. Credit card machines take the place of the fellow who used to take the money in the parking lot. You have to bag your own groceries at the store. Raising the minimum wage is a bad deal for employers and believe it or not, also for employees, especially the ones who end up being let go in order to keep a business from going permanently into the red and having to close its doors.

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There are plenty of excellent economists like Steve Moore of the Wall Street Journal, George Mason University's Walter Williams, and the Manhattan Institute's Diana Furchtgott-Roth who have documented the negative effects of an increase in the minimum wage, especially the teenagers who make up the bulk of those receiving it. It's especially hard on black teens, whose current unemployment rate of 40 percent is already well above the national average. The idea that heads of households are out there trying to keep families together at that income level is largely a myth. Sure there are exceptions and it does happen, but in the main, the primary household breadwinner is not making minimum wage.

There's another aspect to the discussion, however, that has not been talked about much. The president's proposed hike in the minimum wage is another post-election give back to those who worked so hard to ensure his re-election, folks like the AFL-CIO leadership—which benefits financially every time the minimum wage goes up.

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Here's how it works. There are some states and a number of localities where the local statutory minimum wage is already higher than what the federal government requires. Some of those communities have automatic escalator clauses that boost the local figure whenever the federal number goes up. There are also labor contracts, especially those let by the federal government under the Davis-Bacon Act, which requires all projects to pay at least the "prevailing" wage rate. When the minimum wage goes up, so does the prevailing wage. All this, in the end, means there's more money available in workers' salaries that the unions can harvest by raising dues.

What the president is proposing is economically irresponsible, sure enough, but its also a well-disguised give back to his political supporters that comes at the expense of every person in the U.S. labor force as well as millions of Americans who want to be but, in Obama's economy, can't find a job. He's trying to make it harder, not easier, to get the unemployment numbers down while making it easier for his friends in organized labor to get their hands on the cash they need to help wage war on his political opponents until the next election.

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