Minimum wage raised

(Via the Carpetbagger Report)

In my post arguing against the EITC, I agreed with Matt Singer in preferring a rise in the minimum wage to the EITC as a way of helping low-income families. In that post, I assumed that Econ 101 holds (always a tricky proposition) and that an increase in the minimum wage must necessarily be accompanied by a significant fall in employment levels. But is this really so?

TAMPA -- Before last year's elections, a political action committee backed by the likes of Publix Super Markets and Outback Steakhouse had some hair-raising predictions about the effect of bumping up the minimum wage.

Thousands of jobs would be lost if voters increased the state's rock-bottom wage to $6.15 from $5.15, said one e-mail sent out by the Coalition to Save Florida Jobs.

Jobs would be outsourced overseas, the e-mail said. Even companies that paid above the minimum wage would be forced to raise pay for everyone, said retailers and restaurants that opposed the amendment.

Today, though, it's hard to find much wreckage in the Florida retailing and restaurant industries, the two groups that bankrolled the Coalition to Save Florida Jobs.

Seventy-one percent of Florida voters passed the increase, and since the new minimum wage was implemented in May, retail stores and restaurants have added tens of thousands of employees.

"I don't think it's going to kill jobs because you need the people to do the work no matter what," said Walter, owner of Highland Park Furniture, which has a license to use the trade name Macy's Furniture & Mattress Clearance Center. "But it might hurt profits, and it sounds better to say it's going to hurt jobs than hurt profits."

I think that last quote there is something we all need to keep in mind in the debate over raising the minimum wage. We are not living in the text-book world of perfect competition -- otherewise there would be no such thing as profits -- money left over after the business has charged what the market would bear. People at the bottom of the employment ladder has the least bargaining power, their slice of the profit pie is small. By raising the minimum wage, we artificially raise their bargaining power so that they can demand a larger slice. But as long as they are not demanding a bigger profit pie, why should the market care how it is being divvied up?

So yeah. If you raise the minimum wage sky-high, say $30, you are going to cause a lot of unintended consequences as labor-intensive businesses go bust, the economy suffer and employment levels plummet. But you can bet you're not going to see those effects with a small increase in current minimum wage level such as the one Florida recently underwent.