Nobody Cares About Her

Vermont is enjoying the strongest labor market in living memory. Many employers are begging for even marginally qualified employees who are honest, show up for work on time, and have minimal literacy skills. As a result, many unskilled workers, notably young people, have earned a firm grip on the bottom rung of the ladder that leads upward to middle class economic success.

In response to this situation, the Vermont legislature has conceived a remarkable policy initiative to price unskilled beginning workers out of the labor market. It's called raising the minimum wage.

The Senate-passed bill (S. 139) declares that no business in Vermont can employ anyone whose labor is not productive enough to earn $5.50 an hour this year, and $5.75 an hour next year. The House version decrees $5.75 an hour this year. And that's just for openers. Both versions include the creation of a "Livable Wage Rate Study Committee." This new body will conduct extensive research to find out, among many other things, how mandated pay scales can be increased even further.

Well, why not just force employers to pay whatever wage the legislators think would make their workers happy and prosperous? The minimum wage advocates are at least faintly aware that mandating higher labor costs will put Vermont employers who compete in a national or global market at a serious competitive disadvantage. So the bill charges the study committee with concocting some kind of tax credit scheme to compensate the businesses made non-competitive by the legislatively mandated increased wages. Who will be paying for this compensation?

Taxpayers, because every tax credit handed out by the legislature requires other taxpayers to make up the like amount. This is another excellent example of how one costly policy mistake leads to another. This effect can also be observed in Act 60 and Yugoslavia.

The minimum wage hike passed the Senate 30-0 and the House 137-4. The liberals voted to raise the minimum wage, all the while weeping over the low wage worker who needs (but is not initially skilled enough to earn) higher wages. Pro-business legislators voted to raise the minimum wage, all the while fighting to include a taxpayer bailout for small businesses that will be competitively crippled.

The steadily increasing minimum wage ensures that businesses which rely on low skilled employees will avoid Vermont, or if they are already here, will consider leaving Vermont, or turning to automation to reduce their labor force and thus their labor costs. (A sizable fraction of the legislature views this effect as a good thing, because "Vermont doesn't need that kind of employers anyway.")

Businesses which rely on entry level employees and cannot relocate will pass the higher labor costs on in what amounts to a hidden tax on every Whopper and Big Mac. Even businesses which pay well above today's minimum wage will look with growing apprehension at a legislature dominated by politicians excited by the prospect of mandating on every employer what the government thinks is a "livable wage" .

Does the higher minimum wage actually help the poor? Economist David Neumark of Michigan State University recently published the results of an extensive new study on this subject. "When we began our research," he writes, "we expected that the results would probably show some beneficial effects in reducing poverty...The conclusion we reached on the question of whether minimum wage increases help poor and low- income families is a fairly resounding No. Minimum wages instead appear to increase the proportion of families that are poor or near poor." There are probably very few legislators in Montpelier - quite possibly none at all - who are familiar with the Neumark or any other of the many economic studies on this question.

Perhaps the most tragic part of this regrettable act is that nobody is speaking for the young low-skilled worker willing to start at $5.25 an hour and prove herself. Thanks to the supposed "friends of the poor" in Montpelier, at the next economic downturn, if not sooner, she'll be out of a job, out of opportunity, and out of hope. Stanford economist Thomas Sowell, who grew up black and poor, knows well that an above-market mandated wage is the death of opportunity, especially for young blacks emerging from pathetic inner city public high schools. That's why he has termed minimum wage increases "economic insanity and social callousness masquerading as compassion."

The victim of labor price fixing will never amass the political power to fight back. It's a pity and a shame that with very few exceptions, nobody really cares about her.

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May 1999