Blog: Minimum wage madness exposed

June 24, 2011
Minimum wage madness exposed
Thomas Lifson

A real life experiment has revealed the madness of raising the minimum wage. One of the tenets of brain dead liberalism is that raising the minimum wage benefits workers. In the imaginary world of liberals, government edicts make the world run, and market forces count for nothing. Such thinking can only come from people who have never invested their own money, taken responsibility for hiring and paying people, and had to live with market responses.

The GAO has just released a report (summary here) on the effect of raising the minimum wage in American Samoa and the Northern Mariana Islands to mainland US levels. What cause could appeal more to liberals? Eliminating discrimination! Treating all American citizens the same! Rescuing exploited workers from evil companies exploiting them!

Well, in the real world, if employees cannot produce value in excess of what they are paid, they don't have jobs anymore. Anyone who has had to meet a payroll knows this, though people who have made their lives in academia and government can remain immune from this learning.

Here is what happened:

In 2007, the United States enacted a law incrementally raising the minimum wages in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) until they equal the U.S. minimum wage. American Samoa's minimum wage increased by $.50 three times, and the CNMI's four times before legislation delayed the increases, providing for no increase in American Samoa in 2010 or 2011 and none in the CNMI in 2011. As scheduled, American Samoa's minimum wage will equal the current U.S. minimum wage of $7.25 in 2018, and the CNMI's will reach it in 2016.

Despite the delays in further increases, serious damage has already been done:

In American Samoa, employment fell 19 percent from 2008 to 2009 and 14 percent from 2006 to 2009. Data for 2010 total employment are not available. GAO questionnaire responses show that tuna canning employment fell 55 percent from 2009 to 2010, reflecting the closure of one cannery and layoffs in the remaining cannery. Average inflation-adjusted earnings fell by 5 percent from 2008 to 2009 and by 11 percent from 2006 to 2009; however, the hourly wage of minimum wage workers who remained employed increased by significantly more than inflation. Private sector officials said the minimum wage was one of a number of factors making business difficult. In the tuna canning industry, future minimum wage increases would affect the wages of 99 percent of hourly-wage workers employed by the two employers included in GAO's questionnaire. The employers reported taking cost-cutting actions from June 2009 to June 2010, including laying off workers and freezing hiring. The employers attributed most of these actions largely to the minimum wage increases. Cannery officials expressed concern in interviews about American Samoa's dwindling global competitive advantage.

Hat tip: Randall Hoven