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Associated Press photo by Eric Risberg

Wage worries

Money | Several states are raising minimum wage despite the threat of higher unemployment

Issue: "Tour d'America road rage," Feb. 11, 2012

Washington became the first state in U.S. history to require a minimum wage of more than $9 an hour when it-and seven other states-raised the minimum wage on Jan. 1 to account for cost-of-living adjustments.

Liberals (and their media megaphones) tout the minimum wage as a boon to the poor. The Reuters news service announced, "More than a million low-wage U.S. workers will see their hourly pay go up after the adjustment."

But there's more to this story. Minimum wage laws tend to lock out younger, entry-level workers. Though minimum wage laws are set with good intentions, to help the poor, their unintended consequence is to "harm the poorest of the poor," according to Jay Richards of the Discovery Institute. "Untrained, inexperienced, and handicapped workers need to grab the bottom rung of the economic ladder. If you raise that rung too high, they can't reach it." People willing to work for less than the minimum wage for experience and new skills development never get that opportunity.

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David Neumark, director of the Center for Economics and Public Policy at the University of California, Irvine, said no "sensible economist" would argue for a doubling of the minimum wage. The question is: What do incremental increases do to employment? Neumark said a consensus view is emerging that a 10 percent increase in the minimum wage reduces employment among lowest-skilled groups by 1 percent to 2 percent.

Look no farther for evidence of the negative effects of a high minimum wage than Washington and the other states raising the minimum wage: Arizona, Colorado, Florida, Montana, Ohio, Oregon, and Vermont. All eight states have minimum wages above the federal minimum wage of $7.25. Seven of these eight states already have unemployment rates above the national median.

Rough recovery

Despite trouble in Europe, the U.S. economy continues to get better, but the recovery will likely not be steady.

U.S. retail sales rose only 0.1 percent in December, the weakest pace in seven months. Economists polled by Reuters had forecast significantly higher 0.3 percent growth. And even this anemic growth owes much to heavy discounting by retailers in the weeks before Christmas.

That's not to say there aren't a few positive signs. U.S. employment growth accelerated in December and the jobless rate dropped to a near three-year low of 8.5 percent. The economy added 1.6 million jobs last year, the most since 2006. And the U.S. stock market had a quiet rally in December, partly because U.S. companies are afraid to hire or make investments in the current regulatory environment, so they have huge sums of cash on their balance sheets. Also, with concerns about Europe, the U.S. stock market has become a safe harbor for offshore investors.

But Congress is about to enter the financial fray again. The payroll tax cut that Congress extended back in December was just a two-month extension, so the public debate over yet another extension, which Republicans will want to tie to more budget cuts, will heat up in the weeks ahead. So once again what happens in the economy will depend on what happens in Washington, and that's a scenario that the markets generally don't like.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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