Schwarzenegger to Terminate 43,000 Jobs

Last week, California governor Arnold Schwarzenegger proposed a two-part minimum wage increase for the state, which already has a $6.75 per hour minimum wage. Under the proposal, the minimum wage would rise to $7.25 in September 2006, and to $7.75 in July 2007.

The proposal, though, ignores a basic law of economics: that of supply and demand. When the minimum wage goes up, jobs will go down.

Libertarian Party of California chairman Aaron Starr had harsh words for the proposal: “Economically illiterate.”

“The simple fact is that raising the minimum wage will not accomplish its intended goal, unless that goal happens to be political,” said Starr. “Other than winning votes, I’m not sure of the governor’s reason for doing this because wage controls always clearly do more harm than good.”

The California LP estimates 43,000 jobs will be lost statewide if the proposal passes. Indeed, this is what happened in Washington and Oregon:

Thanks to indexing, the two Pacific Northwest states have the highest minimum pay scales in the country. Alaska comes in third at $7.15, with California tied for fourth with New York, Connecticut and Rhode Island, according to the U.S. Department of Labor. The federal minimum wage is $5.15.

Coupled with the high minimum wages in Washington and Oregon, however, are relatively higher unemployment rates. In November 2005, they checked in with unemployment rates of 5.6 and 5.8 percent, respectively, according to the Labor Department’s figures for November. Oregon’s unemployment tied Tennessee for ninth-worst in the country behind hurricane-ravaged Louisiana (12.4 percent) and Mississippi (9.5 percent) as well as Michigan, South Carolina, Alaska, Massachusetts, Kentucky and the District of Columbia. Washington checked in next, at 5.6 percent. California unemployment stood at 5.2 percent in November. The national rate decreased to 4.9 percent in December, the Labor Department announced Friday.

While we’re at it, why don’t we just raise the minimum wage to $25 an hour? That way, everyone will be out of poverty! Unfortunately, it doesn’t work that way in reality. Businesses would then have to raise their prices and lay more people off to cover the expenses, the cost gets passed on to everyone, prices go up, the value of a dollar goes down, unemployment goes up, taxes go up… This is clearly the wrong direction.

  1. I’ve heard that economists now have doubts about the job-killing effects of minimum wage laws. I haven’t heard any theories to explain it, but apparently economists have re-evaluated a lot of the empirical data and concluded that minimum wage laws don’t have much of an effect on employment after all. I’ve been hearing it from people who are not predisposed to believing such things, so I’m pretty sure there’s some truth to it.

  2. The trouble with such nonsense is that the largest employer of economists is government. The bureaucracy submits a request to have a theory wrapped around a government action. The resulting drivel is either complimentary to the intervention or it gravely suggests that the action didn’t go for enough and insist that even more regulation is necessary.
    Most people are unthinking drones who assume that if some economist said it, it must be so.

  3. Call me paranoid but I would like to see Aaron Starr’s information and facts to prove his assertions. Not that I believe him, I just don’t trust him through everything he has done on the LNC.

  4. A gov’t imposed minimum wage sounds good on paper, but rarely does want it intends to, unless their intention is to increase unemployment of the lowest skilled people and youth, increase costs to the business, and ultimately raise the costs to consumers so that we have to raise wages again so people can afford to buy the products. What a viscious cycle!

  5. I can’t imagine how government deciding for employers what they must pay their own workers even sounds good on paper.

  6. Call me paranoid but I would like to see Aaron Starr’s … facts…. I just don’t trust him through everything he has done on the LNC.

    Chris, you could read the linked sites and follow the footnotes, which isn’t easy since most of them don’t have links.

    Darn that post length limit!

    See the fifth and sixth paragraphs of the first site, and the cited paragraphs from the second site, as well as:

    David Neumark, a University of California, Irvine economist and senior fellow with the Public Policy Institute of California, says his research has shown that increases in the minimum wage ultimately have the counter-intuitive effect of increasing overall poverty by prompting low-wage employers to lay off some of their workers.

    “If you keep your job, you’re better off,” Neumark said. “A lot of people get raises, and a small number lose their jobs, which turns out to be a bigger hit.”

    I haven’t followed Starr or LNC. What has he done that worries you?

  7. re: “minimum wage laws don’t have much of an effect on employment after all.”

    I suspect that is because a typical minimum wage law doesn’t set wages that vary that much from market rates. If the law set a minimum wage that was truly significant, such as the “living wage” laws that are being proposed more and more these days, the unemployment it would cause would be more obvious.

    On the other hand, since the typical minimum wage law is only a token effort to raise wages, Libertarians could keep a sense of proportion about such laws. There are much more egregious government abuses to concentrate on.