Somehow the AFL/CIO has miscounted the minimum wage earners by a meer 9.5 million or [...]]]> The Wall Street journal had a great editorial on the link between teen job loss and minimum wage.   Here is a supporting chart from the Bureau of Labor Statistics.  This was completely predictable and was predicted by economists.. and here.

Somehow the AFL/CIO has miscounted the minimum wage earners by a meer 9.5 million or so.  But their excitment over this “pay raise” shows their lack of economic understanding.    What I found most amazing was that their take was that this was new money and woudl increase consumer spending.   This is redistribution of wealth.  No new wealth is created.   With more than 300,000 job losses it is unlikley that this will increase any spending.

I know it feels good to pay people more as they start their careers.  But “feel good” policies are crushing the economy and hurting the people they are supposed to help.   But let’s look at some simple facts.

Just how much is that greater (the one that has a cart ready for you when you enter the store) really worth?   If you ran a store would you pay someone $7.25 a hour to stand there?  Maybe you used to pay then $5.50 and hour but the increasing wage from 2007 has demanded that you increase those rates.   Add in the guys pushing hand-lifts around and stocking shelves at night, bagging your groceries, making your coffee and or ice cream.   In short it is a tax on business; nothing more, nothing less.

Let’s say you run a store and have 10 employees at $6.00 a hour.  Based on a full workload those employees cost (10*6*8hr*20days) = $9600 a month.  They will now cost you $11600.   No change in skills, no change in output, only an increase in cost.   That is a $2000 a month tax ($24,000 a year).  To a small business owner that may be making $75,000-100,000 a year running this small shop that is a increased tax burden of 25%.  What would you do if you were just told you had to pay $24,000 more then you did last year?   A few simple actions drop the two weakest employees ($2320 a month savings).  Maybe you can cope with only dropping one employee.   At the very least the idea of hiring another employee or two will be put on hold.  I know, greedy shop owners.  What about those greedy employees that were willing to put the ship at risk but provide no more value?  We have created a hurdle to get started in the work force, resulting in more workers with limited experience and little skills to prove value to a potential employer.  Experience of any kind shows aptitude and life skills that we are denying our teens in greater and great numbers.

If $7.25 feels good.  Wouldn’t $10.00 an hour feel better?  That would mean everyone was over the poverty level ($22,025 for a family of four).    So there would be no poor.  But as history proves and present facts have highlighted, it would simply mean less workers, less productivity and more poor, not less.

Something subtle may have been lost in the numbers above.  The single person poverty level is 10,991.  Not a workable value but let’s work it though.  11,000/40hours a week/50 weeks worked = $5.50 an hour.   Note that those at this income level (up to $20,000) pay no taxes and receive additional funding from taxpayers.   So based on the government’s plan there should now be no poverty in America.

Hundreds of thousands of first time workers will never get the chance to

“Feel good” now?