If the federal government sought to discourage the hiring of low-skilled workers by making employers pay a 40 percent tax on their wages, no economist would expect low-wage employment to grow or remain the same. But that's exactly how this proposed change would work.
Supporters insist employers will reap benefits in lower turnover and reduced costs for training new workers. But if businesses could make more money with that tradeoff, the government wouldn't have to force them to do it -- greed would be motivation enough.
Despite the minority view expressed in the ad, Hoover Institution economist David Henderson says the consensus in the trade is that each 10 percent add-on would destroy 1 to 2 percent of young people's jobs. So a $7.25 minimum wage could mean the loss of up to 1.6 million positions.
That may seem a small price to pay for enlarging the paychecks of millions of other workers. Sen. Edward Kennedy, D-Mass., thunders, "It's a travesty that a family of three earning the minimum wage works five days a week all year round yet still lives below the poverty line."
But he has taken some liberties with the truth. A family of three with one parent working full-time and the other half-time, both at the minimum wage, gets $15,450 a year in wages, less than the poverty level of $16,600. But, notes John Wancheck of the Center on Budget and Policy Priorities, that family also qualifies for the federal Earned Income Tax Credit and (with a child under 17) the child-care tax credit, bringing total take-home income to $17,638.
That's still a modest amount, but more than this family will earn if one of its members is unemployed. And chances are good that economists have been right all along in expecting such consequences. It may be deeply unwelcome to hear that the government can't fix the price of anything without self-defeating side effects. But even dismal truths are true.
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