Lucy Baxley's "unemployment ensurance" program

(And, no...I don't mean insurance.)

Lucy Baxley's proposal to raise the minimum wage in Alabama may be good politics, but it is bad economics. It would almost certainly ensure a rise in unemployment among those who can least afford it.

Those who earn the minimum wage are predominantly young, unskilled, and inexperienced. Minimum wage laws serve to raise the price of their labor. Consequently, employers become less likely to hire them. In those areas where the labor market has already produced entry-level wages that exceed the minimum wage - as it has, for the most part, here in Huntsville and other Alabama cities - a small increase in the minimum wage will have little effect. But, in economically-depressed areas (e.g. rural communities and urban areas with a high percentage of unskilled workers), the impact on unemployment could be much more significant.

To illustrate the relationship between the minimum wage and unemployment, consider what would happen if the minimum wage were increased to $20 an hour. Faced with increasing labor costs, businesses would be faced with a range of undesirable choices. 1) They could simply pass the added costs on to their customers, but that would only make good business sense if their competitors elected to do the same thing. 2) They could make do with fewer employees, but unless the retained employees suddenly were to become super-productive, then the business would have to deal with the fact that some jobs are left undone. 3) They could make up for the lost workers by implementing more efficient processes, but that could require large capital expenditures on the technology necessary to automate the jobs which were previously performed by (human) employees. 4) They could accept smaller profits, but that would reduce the owners' wealth and diminish the business's prospects for long-term growth.

In any case, the jobs of those who earned less than the new minimum wage would be in serious jeopardy. What, then, would be the plight of those would-be workers who couldn't find jobs because they had been priced out of the labor market? They would not not only be denied the opportunity for a steady income; they would also be denied the work experience and the acquired skills that are essential to advancing into higher-paying jobs, more suited to their interests and abilities.

For many people - myself included - a low-paying entry-level job served as a sort of "baptism" into the labor market. When well-intentioned politicians destroy the opportunities provided by these jobs by making them more costly to employers, they destroy one of the best job-training programs the free market has ever created.

And for no good reason.

As worker productivity and average wages have increased, so, too, has the number of workers earning the minimum wage decreased. Here in Huntsville, you'd be hard-pressed to find any job with a starting salary of $5.15 an hour. The same is true for most other cities and towns throughout the state. Even if the minimum wage were to be abolished altogether, there would be very few employers anywhere who could find people to work for less than the current minimum wage. (One exception might be those workers who are here illegally.)

The labor market works just like any other. The law of supply and demand applies.

But, the arguments against raising the minimum wage are not just based on economic utility. There is also the issue of economic liberty. To give government the power to set a minimum wage is also to give it the power to set a maximum wage. Or to set any wage, for that matter. This is an extraordinary power, and one that cannot be safely entrusted to government.

The power to set wages is one which government cannot assume without doing serious damage to every citizen's interest in economic liberty. Its exercise involves a judgment which government is incompetent to make, but which still manages to inspire the false belief that government action leads to economic prosperity.

Summing up...the minimum wage is a bad idea all around, and everyone - except maybe a few politicians - would be better off if this particular remnant of the New Deal were abolished altogether.