February 21, 1995
Minimum Wage Talking Points: Part 2
Framework For Debating
- The Administration exhibits a superficial and incomplete understanding of the way markets work. This is not surprising from an Administration populated by so many who have never held real private sector jobs, owned a business, or met a payroll.
- Last year during the national health care debate, Americans were stunned to hear the President lecture the owner of Godfather's Pizza not to worry about the Clinton health insurance mandate on employers because Godfather's could just increase the price of its pizzas to offset the cost of the mandate.
- In the world of "Clinton-Commerce," an entrepreneur can make as much money as he wants just by raising prices high enough. Obviously, the Administration does not have a firm grasp on the laws of supply and demand.
- This same lack of understanding is exhibited with regard to government taxation. In the point of view of the Clinton White House, government can raise as much revenue as it desires just by increasing tax rates high enough.
- In 1993, the Clinton Administration hit Americans with an enormous retroactive tax increase and steeply higher marginal tax rates.
- Even with a tax increase that was largely retroactive, there is already solid evidence that the tax increases of 1993 are generating less than half the revenue increase expected by the Administration. Next year, after everyone has had a chance to fully adjust their behavior to the higher tax rates, one can expect that virtually all of the anticipated revenue increase will evaporate.
- Now the White House wants to apply the same kind of "quack-economics" to the minimum wage.
- President Clinton in his State of the Union address said: "I believe the weight of the evidence is that a modest increase [in minimum wage] does not cost jobs and may even lure people back into the job market."
- Well, he has it half right. If the government artificially forces wages above the market wage, it will certainly entice more people into the job market. This is called the supply-side effect.
- But, what he seems to ignore is the demand-side effect. At these higher wages, who is going to hire all of these new job seekers? In fact, not only will employers have to pay more to hire new workers, they will have to pay their current workers who are making under $5.15 an hour even more.
- Therefore, as all serious economists recognize, the net effect of increasing the minimum wage will be to increase the supply of job seekers and decrease the number of job offers. In short, raising the minimum wage will actually kill jobs and increase the unemployment rate.
- Recently, the Labor Department reported that the unemployment rate jumped three-tenths of a percentage point to 5.7 percent.
- This increase in the unemployment rate is troubling. Today the destructive effects of Clinton's past economic policies are finally beginning to show up.
- The employment report illustrates what happens when a high tax and regulation policy is no longer subsidized by an inflationary monetary policy. If the Federal Reserve over-shoots in tightening monetary policy, which a number of economists fear may already have happened, we may be facing some unpleasant economic turbulence ahead.
- And here is the bitter irony for America's lowest paid workers: On February 3, the same day that the unemployment rate increase revealed for the first time the destructive effects of Clinton's earlier policies, the Administration proposed to raise the minimum wage, an equally destructive policy that will hurt the very people it is supposed to help.
- Compassionate politicians and well-meaning government programs like the minimum wage cannot repeal the law of supply and demand any more effectively than they can repeal the law of gravity.
- Majority Leader Armey has suggested that it is the Minimum Wage Law that needs to be repealed to help entry level job seekers to find work.
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