Simple Math above His Pay Grade

It shouldn’t be necessary to spell this out over and over again. But certain highly paid world leaders seem unable to do the simple math. Thus the minimum wage issue rears its ugly head—again.

The President thinks it ought to be $9.00 an hour, up from the current $7.25, set in 2007 by a Democrat Senate and Congress. But,, what with inflation, that ought to go up, right? I used an online calculator, which goes up to 2012 (maybe there’s been extraordinary additional inflation in the past month and a half, but it’s the closest I could get):

$7.25 in 2007 = $8.03 in 2012

The $9.00 amount would be 12.1% over inflation. Put another way, the people who could be entry level workers within that 12.1% difference in wage (from $7.25 through $8.99 per hour) will no longer have jobs available to them.

This chart shows how minimum wage affects jobs
for unskilled workers, from this 2006 article

Just to be sure this concept is clear, a wage is a contractual agreement between an employer and an employee. As I explained 5-11-2011 and 10-7-2011, in a free market, 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. Both agree to what is mutually satisfying.

When government steps in and insists on a minimum wage, 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 costs of employing a worker). Efficiency and effectiveness become absolute necessities. So the employer can’t risk hiring entry-level, untrained workers. Thus lower skilled workers are left unemployed, causing them both loss of income and loss of accrued experience.

As John Boehner responded following the State of the Union Address, “When you raise the price of employment, guess what? You get less of it.”

Right now we have a reported 7.9% overall unemployment, and this past summer the unemployment for youth (ages 16-24) was 17.1, with blacks suffering beyond depression levels of 28.6%. Is this the time to enforce fewer opportunities?

You know how in the cartoon Dilbert the people actually speak what they are thinking? Wouldn’t it be handy if the president actually spoke the truth? What he is saying is, “No one working 40 hours a week should be living in poverty, so we should make sure the minimum wage is high enough to provide for a two-parent family of four. We need to keep employers from unfairly exploiting workers.”

But if he were speaking truthfully, he’d be saying, “Even though a minimum wage is designed for entry level workers to gain experience that will lead to better future pay opportunities, and no one who works steadily and gains experience is likely to remain at minimum wage levels, so feeling sorry for families supporting children endlessly at minimum wage is a crock. It just sounds better politically to claim we care about the poor. So we are willing to risk having fewer job opportunities for entry level workers, thus seriously interfering with their current and future earning power, so we can claim we are the ones who care. The important thing, after all, isn’t to help poor Americans; it is to make the GOP look bad.”

Imagine the difference in polling results if the question were asked, “Do you think the minimum wage should be raised if it means all workers currently being paid below the new minimum are laid off?”

The basic fact is that government can’t make free people employ people they can’t afford to employ. You’d think the leader of the free world might have enough understanding of basic economics to know that. Either he can’t do the math, or, more likely, he’s done the math and chosen a path that purposely causes harm but gives him political bonus points in the game he’s playing with our lives. Standing firm for free enterprise is essential, despite the political cost.