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.”
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.