California passes new job-killing minimum wage.

California’s dreamin’ if they think a $10 minimum wage is a good idea

The state of California has increased their minimum wage to $10 per hour, raising it from $8. Washington state had previously been the highest with $9.19 an hour. The bill was passed on a straight party-line vote. Governor Jerry Brown has stated that he will sign the bill. The state’s employers will now have even more incentive to leave for states like Texas, that offer friendlier business environments.

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The minimum wage hike has been labeled a “job killer” by a spokeswoman for the Chamber of Commerce. Her comments are supported by studies conducted by economists who determined that 85% of research points to a loss of jobs following a minimum wage increase. The mindset behind minimum wage increases is that employment is always exploitive and that employers will never voluntarily raise wages, which is untrue. Also a negative is that employers will tend to reduce non-wage compensation in order to minimize production costs, similar to how Trader Joe’s recently cut healthcare to part-time workers due to increased costs due to Obamacare.

READ: Trader Joe’s cuts off health care to part-time workers due to Obamacare

The “Ricardo Effect”

One interesting side effect of increasing the minimum wage is known as the “Ricardo Effect”, a situation where raising the minimum wage will cause employers to substitute machinery for labor. This has been occurring recently in certain fast food stores across the country. Some people argue that the loss of unskilled labor in favor of automation is actually positive. But In “Human Action”, Ludwig Von Mises argued that this neglects the fact that it is usually a lack of capital which checks an entrepreneur’s attempt to improve the equipment in his company. Since the minimum wage doesn’t create additional capital, forcing business owners to automate in one area takes capital from places where it might have been used more efficiently. So the economy does not benefit as a whole from the automation process.

Washington D.C. managed to avoid a setback to economic growth when the district’s Mayor Vincent Gray voted to veto a “living wage” bill, allowing Wal-Mart to compete in an area that has been extremely hostile to the popular chain store. The bill would have required the retailer to pay a $15 “super-minimum” wage. Thankfully for the local economy the bill did not pass as 1,800 jobs would have been lost in the District of Columbia.

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“You cannot make a man worth a given amount by making it illegal for anyone to offer him less. You merely deprive him of the right to earn the amount that his abilities and situation would permit him to earn, while you deprive the community even of the moderate services that he is capable of rendering. In brief, for a low wage you substitute unemployment. You do harm all around, with no comparable compensation.” Henry Hazlitt

The minimum wage is political deception used to buy favor from special interests. People believe it is good because we have a natural desire to focus on short-term personal gains, rather than our long-term overall economic health. If you get a minimum wage hike, you will celebrate. But for the people who will now have their requirements for employment raised, they will be left out. People who are unskilled labor often have to work in low wage jobs in order to get the experience necessary to move on to higher pay. Although people complain about “McDonaldization” of the economy, the truth is that minimum wage laws raise the bar for unskilled workers to enter the market, making fast food jobs even more difficult to acquire.

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Citizens interested in a simple explanation for the underlying principles described above can watch this brief video produced by the Foundation for Economic Education. The video is a brief explanation for how the minimum wage harms unskilled labor and leads to job loss.