Colorado set to lower minimum wage
Due to Colorado's minimum wage being tied to inflation, lawmakers are looking at doing something that has not been done in about 70 years. Although this drop is marginal, amounting to a paltry 4 cents it is a step in the right direction to break down one of the most economically foolish federal mandates in the country. Beyond being grossly unconstitutional the minimum wage like my other politically attractive solutions hurts the very people it seeks out to help. Minimum wage laws are just another form of price control and price controls always without exception lead to the same result - shortages. Whether it is price fixing food in Russia, energy in California, insurance premiums, oil from the Middle East the pattern is always the same and it's another beautiful example of politicians ignoring economics.
Consider the following scenario and see how often you can apply this pattern to everyday life.
- A consumer agency, special interest group or an organization clamors about unfair pricing.
- Politicians get involved and realize they must implement some kind of price control to satisfy the public.
- Industries being affected by price control begin to reduce output.
- Shortages develop
- Rinse and repeat
Politically it looks attractive and those who stand behind the price controls are celebrated as heroes, meanwhile the industries generating the shortages are vilified! Imagine that?
In the case of minimum wage the shortage is generated by businesses forced to pay artificial wages and thereby reducing the number of potential employment. Those that are currently employed possibly enjoy a marginal improvement in their standard of living, but those in dire need sink further into poverty as they remain unemployed. Still not convinced? Ok, let me present another example. Pretend you are a small business owner and happen to have 10 slots open for low skilled labor paying minimum wage. While 7.25/hour is not to your liking you feel you can swing it given the productivity you yield from these 10 employees. Now pretend a federal mandate forced you to pay 12/hour. Your are not getting any additional output, but you are now spending hundreds of dollars a day that pushes you into the red. What do you do? You start shrinking the hours available (which you will soon do anyway given the mandate on health insurance) or the most likely case you just start laying people off. You are less productive and someone just lost a job, but the politicians are celebrated as the proverbial Robin Hood! If this example is convincing then the numbers no longer matter, because whether it's gradual or instant, the effect is the same.
Colorado will not increase available jobs given the paltry decrease in pricing, but hopefully it can start a debate over a federal practice that needs to be abandoned for the sake of all the people who are currently unemployed and a curtailing of federal power.
Consider the following scenario and see how often you can apply this pattern to everyday life.
- A consumer agency, special interest group or an organization clamors about unfair pricing.
- Politicians get involved and realize they must implement some kind of price control to satisfy the public.
- Industries being affected by price control begin to reduce output.
- Shortages develop
- Rinse and repeat
Politically it looks attractive and those who stand behind the price controls are celebrated as heroes, meanwhile the industries generating the shortages are vilified! Imagine that?
In the case of minimum wage the shortage is generated by businesses forced to pay artificial wages and thereby reducing the number of potential employment. Those that are currently employed possibly enjoy a marginal improvement in their standard of living, but those in dire need sink further into poverty as they remain unemployed. Still not convinced? Ok, let me present another example. Pretend you are a small business owner and happen to have 10 slots open for low skilled labor paying minimum wage. While 7.25/hour is not to your liking you feel you can swing it given the productivity you yield from these 10 employees. Now pretend a federal mandate forced you to pay 12/hour. Your are not getting any additional output, but you are now spending hundreds of dollars a day that pushes you into the red. What do you do? You start shrinking the hours available (which you will soon do anyway given the mandate on health insurance) or the most likely case you just start laying people off. You are less productive and someone just lost a job, but the politicians are celebrated as the proverbial Robin Hood! If this example is convincing then the numbers no longer matter, because whether it's gradual or instant, the effect is the same.
Colorado will not increase available jobs given the paltry decrease in pricing, but hopefully it can start a debate over a federal practice that needs to be abandoned for the sake of all the people who are currently unemployed and a curtailing of federal power.
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