Wednesday, May 11, 2011

Beware Government with Good Intentions

I have a theory that I’m collecting evidence to verify. The theory is that, whenever government oversteps its proper role and takes on some “good deed,” the result will be a variety of unintended negative consequences.

Minimum wage is a clear example. In a free market an employer and employee agree to a wage that satisfies both. The employer is willing to pay an amount that will increase his business income, typically the lowest amount he can pay to get that outcome. The employee exchanges his time and effort in exchange for a wage—typically the highest wage he can persuade an employer to pay for the work.

Walter Williams’ most recent piece "Minimum Wage's Discriminatory Effects" is a good explanation. In summary, what happens when government steps in and insists on a minimum wage is that the employer is forced to either take a profit loss or hire only better qualified workers that are worth the set wage (plus social security, possibly insurance or other benefits as well). So lower skilled workers are left unemployed, failing to accrue experience.

It seems to me Detroit is the poster child for the disastrous results of such interference—with labor unions doing much of the interfering to require higher wages. So the employed workers get that wage, but the vast unemployed get nothing. The only option left is to go elsewhere for employment.

I grew up in a somewhat freer day. At age 12 I was able to make a little spending money (and gain work experience) doing occasional babysitting at $.50 an hour (except for one rather cheap neighbor who paid only $.35 an hour for 3-4 kids and expected the dishes done—so, except when I felt generous, I found myself too busy). At age 16 I got a rather miserable job at a fast food place that paid the minimum wage of $1.10 an hour. It gave me experience to get incrementally better jobs the following summers.

My brothers used to do landscaping work, for a successful landscape designer that lived on our street. They got that job after doing watering and lawnmowing on their own for people on vacation or at work all day. Jobs with tiny pay gave experience that led to better pay. Today many of our neighbors hire landscaping services to come weekly and mow the lawn and weed—at $40 a week, well beyond our means. These tend to be small family businesses, usually Hispanic (I would hope they are legal, but don’t really know how to find out); my children were excluded, even though we taught them Spanish and at least one of them has looks that could pass as something non-white. Rumor is that individual workers make below minimum wage, so an American teenager couldn't be hired lawfully.

My brothers also had opportunities to work in home construction, as a hod carrier for a brick mason—hard work and low pay that led to experience to get the higher paid construction jobs later. (Both of my brothers gained skills that led to careers in construction, which provided well until the recent housing crash.) But my kids didn’t get that kind of experience, because around here there are two options: be part of a Hispanic low-paid team, or be skilled enough to get union pay. [ I could talk about illegal immigration and the claim that they do work Americans just won’t do, but I’ll save for another day.] So, for regular kids whose parents don’t own a business or have great connections, kids are lucky to get fast food jobs—which ours have. We’ve had kids working at Chick-fil-A almost continuously for a decade, with no Sunday work, which we appreciate. (The employers have moved beyond government-imposed minimum wage fairly quickly by hiring productive workers and training them well. Plus, I'm also a fan of their cow ad campaigns; they make me laugh.)

What would happen if we eliminated government interference (and also union interference) and allowed the free market to set wages for those agreements between employers and employees? It’s possible, even likely, that many unskilled laborers would be offered wages well below what can support a family, which, I could point out, is true of minimum wage jobs now despite the government interference. But with employment comes experience, usually leading to higher wages later. So that could be an improvement over being unemployed and perpetually unexperienced. It might be that some people get stuck in low paid dead end jobs that don’t pay enough for rent and food. But in more cases any employment and any wage would replace hopelessness with hope for something better in the future. It’s easier to tolerate boring low-pay work now if you can believe it’s a step toward something better later.

So the moral is, beware of government with good intentions.

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