Economics

The looming disaster facing these six states because of laws they recently passed

Bureaucrats and politicians should be required by law to be trained on the Law of Unintended Consequences. If they were, they wouldn’t vote to pass laws like this…

Increases in minimum wage laws break into the news cycle every now and then. Democrats vote for them. Probably some Republicans do too. The liberals use minimum wage laws to drive a wedge between otherwise sensible voters and Republicans. They make it seem like they are taking the moral high ground.

They are good at this. In the case of minimum wage, they prefer to adopt the phrase “living wage.” Like in the recent case of Novant Health, a healthcare provider in North Carolina. They are increasing pay for some of their North Carolina workers to $11 per hour, up from $7:

In a statement, Novant officials said they realized the state’s minimum wage “was not a living wage” and wanted to give their employees “a wage on which they could live in their local community.…It’s an investment in our people.”

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Janet Smith-Hill, executive vice president and chief human resources officer. “We are committed to attracting and retaining highly qualified team members, and offering a living wage is another way to live up to that commitment.”

The increase, which will total $1.2 million, largely affects those in entry-level positions, including technical assistants, certified nursing assistants, supply chain and materials management and some clerical positions.

NO COERCION REQUIRED

In this case, there’s no state coercion behind the increase. That’s good. Companies don’t always increase their wages under threat of government sanctions.

Henry Ford is famous for doubling the wages of the assembly line workers in his car manufacturing plants. He didn’t do it because he was feeling incredibly generous to them. He didn’t do it because the State coerced him under threat of violence. He didn’t do it so that they could all afford to buy one of his cars.

Instead, he did it to cut down on turnover.

As it turns out, the jobs his workers had to do were incredibly boring and repetitive. They just walked off the job after a while. It was too boring for them. So, he effectively doubled their wages, from about $2.50 an hour to $5.00 an hour in order to retain them. It worked. The jobs might be boring, but at least they paid well.

This saved Ford a lot of expense caused by high turnover. He didn’t have to continually train more workers to fill the old slots.

But in the case of a government-mandated minimum wage, people across the board lose out. Some lose bigtime.

MINIMUM WAGE POVERTY

When governments impose minimum wage, they are usually forcing the price of labor higher than the market expects it to be. This creates a high demand for these high-paying jobs. You have more potential workers than you do positions. This creates a glut of workers.

But because it’s a law, the excess workers can’t find employment. They can’t take a job with someone who is offering a lower wage because they aren’t legally allowed to offer a lower wage.

As a result, minimum wage laws create unemployment and increase poverty. If faced with having no job at all for $10/hr, or instead getting a job but only making $8/hr, a rational person would probably take the lower paying job instead of taking no job at all.

A company may have been willing to hire a new employee at $6 per hour, but a $10 per hour minimum wage makes them reconsider. Instead, they distribute that burden among their existing employees.

But minimum wage laws rob us of options. That’s why government welfare programs exist: to support those who can’t get a job because minimum wage laws and other laws and regulations are interfering with the job market.

In 2016, Arizona, Colorado, Maine, Washington, New York, and California all passed laws to increase minimum wage by various degrees over time. These states, and others who join them, get closer and closer to disaster as their minimum wage creeps up.

BEATING THE BUREAUCRATS

In response to these higher labor costs, what do rational employers do? They may try to pass some of the extra costs onto their customers, but at some point customers go elsewhere. Prices get too high. The company begins going under.

So, the business owners turn to labor-saving devices. Wendy’s recently announced that it was going to install self-ordering kiosks — robots — in 1,000 of its stores by the end of this year:

Trimm said the kiosks accomplish two purposes: They give younger customers an ordering experience that they prefer, and they reduce labor costs.

A typical store would get three kiosks for about $15,000. Trimm estimated the payback on those machines would be less than two years, thanks to labor savings and increased sales. Customers still could order at the counter.

Opponents of economic logic might argue that this has nothing to do with recent increases in minimum wage to $15/hr in some areas. Technological innovation like this is natural over time.

But they’d be missing the point.

Yes, technological innovation like this does occur naturally over time. New, labor-saving devices are invented which take the place of jobs previously performed by high-paid employees.

THE TIME FACTOR

But the effect that government interference has by way of minimum wage laws is to accelerate this process. In a world without minimum wage laws, Wendy’s might not have decided to introduce these robots for another 10 years — who knows? But the laws have distorted the price mechanism in the free market. This is where we are now, for better or worse. It’s forcing classes of people out of the labor market who aren’t allowed by law to get lower paying jobs anywhere else — even if they’re willing to work for lower wages.

That is, unless they’re willing to work illegally. Off the books. Under the table.

As governments artificially drive up the cost of labor, over and above what the free market might demand, they drive entrepreneurs and business owners into responding in ways that will lower their costs.

Either that, or they go out of business, and everybody loses. When conditions become so oppressive that a large portion of the economy is faced with going out of business, instead they turn to the black market. That’s the case in Greece. Twenty-five percent of its GDP is generated on the black market. That’s tax revenue the government can’t collect.

That size of black market represents unprecedented levels of faithlessness in the prevailing government.

Princess Leia couldn’t have said it any better:

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