Wednesday, October 26, 2005

The Follies of the Minimum Wage

Wal*Mart, oddly enough, is getting grudging support from the likes of Ted Kennedy for calling for a raise in the minimum wage. This simply exposes the silliness behind minimum wage laws though, since it doesn't cost them! They already pay above the legal minimum wage, so this cost is bourne by their competitors. This would be the moral equivilant of me calling for an increase in welfare payments in the state of Florida and being praised for my support of the impoverished.

The Wall Street Journal (subscription required) sums this up:

It's understandable after years of pounding from unions, trial lawyers, anti-sprawl activists and the media that Wal-Mart would go on a PR offensive. What's troubling, and more than a little curious, is Mr. Scott's desire to make price controls for labor a part of his public atonement for the company's success. Given that anti-Wal-Mart types mostly fire populist blanks, why is Mr. Scott so eager to provide competitors with real ammunition?

The answer may be that calling for an increase in the minimum wage amounts to Wal-Mart calling for a hike in the labor costs of its smaller rivals, not to mention any potential start-ups. Wal-Mart already pays its workers an average hourly wage of close to $10 and so Mr. Scott is essentially asking Congress to strengthen its competitive advantage.

The CEO said his goal is to "help working families," but minimum wage laws have the opposite effect. By putting a floor under wages, regardless of skills or competition, they can force businesses to cut payrolls or even shut down. Hence, they reduce employment in general, and especially among the low-skilled and inexperienced.