Wage controls hurt the poor
by Linn and Ari Armstrong
The following article was originally published by Grand Junction Free Press on April 3, 2006.
Local Sandra Dorr's "Colorado Voices" column fits right in with the leftist agenda of The Denver Post. Her March 15 column is fittingly titled "The war on the poor in America" -- fitting because she is waging such a war.
"It's high time our town and others increased the minimum wage," she writes, a policy guaranteed to reduce the wages of the poorest workers to zero -- put them out of a job completely -- and thus also deprive them of the work experience that would allow them to earn more in the future.
Also fitting is that the Post describes Dorr as a "fiction writer," because her suggestion that imposing wage controls (and thereby putting people out of work) is somehow compatible with "weav[ing] the poor into our hearts and minds" is pure fiction. But the Post would rather make more room for fictitious left-wing dogma than for good economic sense.
Why do real wages rise? Is it because of the arbitrary dictates of city council, the state legislature, or Congress? If it's possible to help the poor by imposing wage controls, why not really help them out by raising the minimum wage to, say, $100 per hour?
The simple and obvious answer -- obvious to everyone except leftists -- is that central controllers cannot create wealth by issuing commands and sending out armed agents to enforce them.
If a worker can increase revenues by, say, $5 per hour, then a wage control of $6 per hour will put that worker out of a job. No employer will choose to lose money by paying an employee more than the value of what he or she produces.
Real wages rise when additions of machinery, advances in technology, and better skills and education allow workers to produce more. The reason that American workers are paid phenomenally more than are workers in most of the rest of the world is that American workers have the advantage of more capital: better facilities, more and better equipment, advanced computers and robotics, etc.
The way to increase real wages at the fastest rate possible is to achieve a government that fully protects individual rights, including property rights, and leaves people free to produce and invest in a free economy. Of course, this is precisely the policy opposed by the left.
Economist Thomas DiLorenzo writes in How Capitalism Saved America that, between 1820 and 1860, "the purchasing power of an average worker's paycheck increased between 60 and 90 percent..." He continues, "Between 1860 and 1890, during what economists call the 'second industrial revolution,' real wages -- that is, wages adjusted for inflation -- increased by 50 percent in America."
These advances were the result of growing capital and greater output created on a free market, not the whim of some politician or writer of fictitious economics.
Further, DiLorenzo writes, in a free market (or even a partly free market like ours) upward mobility is the reality for most people. People just starting out (including new immigrants) usually make less, but their income grows as they become more experienced and more productive. In Basic Economics, Thomas Sowell laments that minimum wage laws deprive the least-experienced workers of an opportunity to gain skills and earn more in the future.
Yet some writers at the Post apparently think that economics can be thrown out the window so long as union bosses say it's okay. In her February 6 piece, Julia Martinez notes that anti-market activists are trying to place more onerous controls on Colorado wages.
She writes that State Senator "Shawn Mitchell, R-Broomfield, warned that raising the minimum wage would 'price some jobs out of the market' and force layoffs."
"It's never happened before," Martinez quotes Steve Adams, Colorado AFL-CIO president. Apparently such a biased and ignorant answer is good enough for columnist work at the Post.
In the U.S. and elsewhere, the government grants unions special privileges, essentially granting them the ability to use political violence to force wage terms. What happens when unions obtain artificially high wages for its members? As Ludwig von Mises explains in Human Action, employment is artificially reduced in the unionized industries, so "those losing their jobs... enter the free branches of business and increase the supply of labor in them."
"The corollary of the rise in wages for organized workers was a drop in wages for unorganized workers," Mises writes. Then unions demand minimum wages to "fix" a problem caused by unions, which results in the unemployment of the least-skilled, poorest workers.
The Post even found an assistant professor of pseudo-economics at Colorado State University to back wage controls. But in the real world, as opposed to the fictitious world of left-wing socialists, wage and price controls interfere with rational economic planning by individuals and hurt the poor along with the rest of us.