November 19, 2006

Don't Raise The Minimum Wage—Lower The Boom On Illegal Immigration!

By Steve Sailer

So, what was the midterm election all about anyway? Other than voters being profoundly sick of George W. Bush and the Republican Party? And Iraq?

One consistent theme was voter backlash against the high cost of cheap labor.

Many of the new winners were what Jacob Weisberg in Slate calls " Lou Dobbs Democrats" and "economic nationalists." The most striking addition to the Senate, Virginia's Jim Webb, war hero and intellectual, author of Fields Of Fire, which Tom Wolfe considers the finest Vietnam War novel, pointed out:

"In the age of globalization and outsourcing, and with a vast underground labor pool from illegal immigration, the average American worker is seeing a different life and a troubling future." [Class Struggle | American workers have a chance to be heard, OpinionJournal.com,  November 15, 2006]

In six states, initiatives were on the ballot to raise the minimum wage. They all passed, by an average margin of 65-35.

Back in April, a Pew Research Center poll found that 83 percent of the public favors raising the minimum to $7.15.

Nancy Pelosi has said she'll try to push through a minimum wage boost during her "first 100 hours" as the new Speaker of the House. President Bush doesn't appear to have any objections.

If you've taken Econ 101, you probably heard that minimum wage laws are a dumb idea.

Their impact on consumer prices, however, isn't an important objection to minimum wage laws. For instance, the Open Borders lobby has long put out scare propaganda about how higher wages for stoop laborers will make broccoli cost $5 per head, in reality, unskilled labor makes up a trivial part of the $13 trillion dollar American economy. Even in industries addicted to illegal alien labor, the cost savings to consumers are minimal: doubling the pay of strawberry pickers, for example, would raise the supermarket price by six pennies per pint.

No, the worst thing about minimum wage laws is their impact on the people they are supposed to benefit. The Law of Supply and Demand says that if the government enforces a minimum above the market wage, some workers will indeed get paid more, but others won't have jobs.

The late Milton Friedman observed many years ago:

"Many well-meaning people favor legal minimum wage rates in the mistaken belief that they help the poor. It has always been a mystery to me why a youngster is better off unemployed at $4.75 an hour than employed at $4.25.''

Yet, if you are a politician, minimum wage laws make lots of sense.

First, in many states, the market rate is now well above the federal minimum of $5.15 per hour, which hasn't changed since 1997. In Pelosi's ultra-expensive home district in San Francisco, for example, raising the federal minimum will be one of those purely symbolic gestures that politicians love.

Second, while lifting the minimum can cost you campaign contributions from business owners, you don't have to worry about losing many votes from people who are out of work because of it. They are simply unlikely to figure out the causal relationship between your vote in Congress and their lack of a job.

Say a business employs two workers at $5.15 an hour. The minimum wage goes up to $7.25 per hour, so the owner gives the smarter worker a $2.10 raise and lays off the dumber one. The smarter guy might remember to vote for his Congressman in gratitude. But is the guy who got fired because he wasn't worth the new minimum wage (remember, he probably didn't major in econ at the U. of Chicago) going to understand he's out on the street because Congress lifted the minimum? Is he going to look up how his Congressman voted? Is he going to remember to vote against his Representative the following year? Is he even going to remember that the first Tuesday in November is Election Day?

Then, consider all the businesses that would have hired new workers at the old minimum wage, but now can't afford it. How likely is the unemployed guy who would have been hired in the alternative universe where the minimum stayed $5.15 per hour even going to notice that he's still out of work due to the higher minimum?

Yet, misguided as it may be, raising the minimum wage is at least some kind of response to the genuine problem of employers of cheap labor privatizing profits while socializing costs. Americans don't let other residents of America live on $5.15 per hour. Instead, we massively subsidize them. We pay to educate their children in public schools, give them free medical care at emergency rooms, and police their neighborhoods.

A minimum wage above the market wage treats the symptom, not the underlying problem, which is that the balance of supply and demand doesn't provide a high enough market wage. While treating the symptom will help the more productive, it will keep the less productive (who are often young and black and likely to cause trouble when they aren't honestly employed) from finding jobs at all.

Of course, the reason the market wage is so low these days is the enormous supply of illegal aliens.

Moreover, raising the minimum above the market encourages employers to cheat by paying an illegally low wage. And which kind of workers are most likely to keep their mouths shut about making less than the minimum? Illegal aliens.

Raising the minimum without cracking down on illegal immigration is pointless.

Ironically, the same liberals who claim that the immigration laws can't be enforced simply assume that the minimum wage laws could be enforced. Even if all the current illegal aliens were "put on the path to citizenship," a high minimum wage would just attract new ones who would work for less than the legal limit.

The far more practical solution is to drive up the market wage by rectifying the balance of supply and demand for unskilled labor. How? By closing the borders.

I'm always amused that so many free market economists think that Neal Stephenson's 1992 dystopian sci-fi novel Snow Crash (which was heavily influenced by Jean Raspail's Camp Of The Saints) about a globalized America where "the Invisible Hand has taken all those historical inequities and smeared them out into a broad global layer of what a Pakistani bricklayer would consider to be prosperity" is actually a utopian book.

Simplistic Libertarians need to realize that their beloved Open Borders inevitably lead to a political backlash in favor of laws, like Nancy Pelosi's minimum wage boost, that meddle with the economy. Why? Because American voters won't put up with a completely globalized labor market. The simplest way to make libertarian economics more politically feasible in America is to insulate our labor market through better border controls. "Libertarianism in one country" is possible but there is staggeringly too much inequality in the world for America's love affair with capitalism to survive importing massive amounts of it.