Steve Chapman

The federal government is trying to strengthen the U.S. auto industry. So here's a great idea for what it can do: Tell the Big Three to raise their prices across the board.

That would help in some obvious ways. Higher prices would mean bigger profit margins on every sale. Bigger profits would mean more jobs. More jobs would mean more workers buying new American cars.

But anyone can see that raising prices wouldn't work, because it would dry up sales. If American consumers were willing to pay more for American cars, dealers would already be charging higher prices. This is such an obviously boneheaded idea that no one would ever dream of doing it.

But in the realm of employee compensation, the federal government is taking that absurd notion and putting it into law. Come Friday, the federally mandated minimum wage will jump from $6.55 an hour to $7.25 -- an 11 percent increase. At a time when employers are laying off workers, Washington is going to make it more expensive to keep them.

If you're a minimum wage employee, your job will pay more, but only if it still exists. These days, most companies are scrutinizing every position on the payroll to make sure it's worth the cost. Raise the toll, and some employees will find they are no longer valuable enough to make the cut.

Economists generally agree that increases in the minimum wage cause unemployment even when the economy is prospering -- something it has not been doing for the last year and a half. David Neumark, a professor at the University of California, Irvine, estimates this rise will destroy some 300,000 jobs among teens and young adults.

Even proponents of the increase understand the tradeoff. Otherwise they would demand an even bigger hike. If you can force employers to pay higher wages without reducing employment, why set the minimum at $7.25 an hour? Why not $17.25? Why not $37.25?

The suspension of disbelief required to support the minimum wage will only take you so far. It's impossible to deny that if it were illegal to pay someone less than a mere $36 an hour, a lot of jobs would vanish. But a small dose of poison is still poison, and in this case it's being administered to a patient who is already ill.

Supporters make a virtue of bad timing by claiming the change will provide a stimulus exactly when the economy needs it. The liberal Economic Policy Institute in Washington insists that a minimum wage increase "would not only benefit low-income working families, but it would also provide a boost to consumer spending and the broader economy."


Steve Chapman

Steve Chapman is a columnist and editorial writer for the Chicago Tribune.
 

 
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