Kerry Says Minimum Wage Hike Will Help Small Businesses

Tuesday, the federal minimum wage increased 70 cents to $5.85. It's scheduled to go up another 70 cents next year. And another 70 cents the following year. And John Kerry, the chairman of the Committee on Small Business and Entrepreneurship, says that small businesses will benefit from this increase. Huh? CNSNews.com tries to explain his logic.

"In order for America to remain truly competitive in a global economy, we must invest in our workforce to stimulate small business growth. Small businesses create two-thirds of all new jobs in this country, and the vast majority of them are paying their new workers higher than the minimum wage," Kerry said Thursday in a news release.

Huh? What point is he really trying to make? If the majority of small business owners are already paying their new workers higher than the minimum wage, why raise the minimum raise? This increase doesn't really help the workforce like he says it does. Why can't Kerry leave it up to the market to determine what wages should be? If an employer can't pay what his competitors pay, he's not going to last long in that market. Increasing the minimum wage decreases the amount that business owners can re-invest in their businesses. Walter Williams has a great column which has some more thoughts on the issue.

Place yourself in the position of an employer and ask: If a worker costs me, say, $7 in wages, plus mandated fringes such as Social Security, unemployment compensation, sick and vacation leave, making the true hourly cost of hiring a worker $9 an hour, does it pay me to hire a worker who's so unfortunate to have skills that enable him to produce only $5 or $6 worth of value per hour? Most employers would conclude that doing so would be a losing economic proposition.
There are a couple other villains in the piece that force employers to respond to increases in wages that exceed a worker's productivity. If he did hire such workers, he would earn lower profits. Soon, investors would abandon him and put their money where returns are higher.
There's another villain -- the customer. If the employer retained workers whose wages exceeded their productivity, to cover his costs he would have to charge you and me higher product or service prices. I don't know about you, but I prefer lower prices to higher prices, and I'd switch my patronage to those firms who adjusted to the higher labor cost.
Congress can easily mandate higher wages, but they cannot mandate higher worker productivity or that employers hire a particular worker in the first place. Those of us who truly care about the welfare of low-skilled workers should focus our energies on helping them to become more productive, and a good start would be to do something about the rotten education that many receive.