Posted in Rants on July 23rd, 2009 by Ed

Americans believe anything that feels like it should be true and, as a nation, know absolutely dick about economics. Thus bits of folk wisdom based on an Econ 101-level understanding of macroeconomics quickly rise to the status of gospel truth – half urban legend, half unadulterated bullshit. The Federal minimum wage is set to rise to $7.25 on Friday and, as we all "know," raising the minimum wage makes jobs disappear.

Whenever Americans appear to be at risk of forgetting this kind of wisdom, a corporate-backed front group emerges with a marketing campaign to ram home the point. The "Employment Policies Institute," which pitches itself as a think tank (while the media happily play along) but is actually a lobbyist- and business-funded anti-living wage group, fills that role today. Their point is simple. The money in our economy represents a zero-sum game; if wages must go up, the number of jobs sharing the finite pool of cash available for wages must decrease. Write that on the final exam and revel in your C-. Then get a job writing syndicated financial columns with your sophomoric logic.

Disregard the fact that half of the states already have the $7.25 minimum and there is not the slightest bit of evidence that any state or Federal minimum wage hike in the past led to job loss. Why, in the zero-sum game, must the variables be limited to the number of jobs and the minimum wage? If the number of employees and hours worked at a business are held constant, then the cost of employing a minimum wage workforce will increase. Why must that result in job loss? Why can it not result in a 10 cent price increase on your Whoppers Junior? Why can it not result in a seven-figure bonus for the higher-ups instead of an eight-figure one? Why can the cost not be recovered from other non-wage costs of operating the business?

None of those scenarios can be proposed because the purpose here is not, and never has been, to discuss the role of labor costs in the economics of operating a business. The purpose is to scare ignorant or desperate people into thinking that they will lose their job of they don't speak up to protect the boss's right to pay them like illegal immigrants. As the current marketing campaign to this effect is speaking out against a wage hike which has already been signed into law, I'm guessing that understanding the relationship between wages and job supply is not the only aspect of economics that the Employment Policies Institute and its followers fail to grasp correctly.