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  • The Road to a $12.50/Hour Minimum Wage in D.C. Is Paved with Good Intentions

    Photo credit: Newscom


    If only the D.C. city council understood good intentions do not ensure good results. Council members are debating four different proposals to raise the city’s minimum wage from $8.25 per hour ($1 above the federal minimum) to between $10.25 and $12.50 per hour.

    Proponents of the legislation want to help disadvantaged workers. Council member Vincent Orange tells The Washington Post, “The District of Columbia is doing extremely well, and the folks who were here during the bad times deserve the opportunity to be here during the good times.” However, these proposals would hurt the very workers the council wants to help.

    The D.C. government can require companies to pay their workers more, but this does not make those workers more productive. Businesses will not pay their workers more than the value their labor creates. Many companies that can afford to pay an entry-level worker $8.25 an hour would find paying them $12.50 an hour uneconomical. Raising the minimum wage so high would force companies to cut jobs. They would also hire much more selectively, choosing only the most skilled and experienced applicants for the higher pay. This would leave entry-level workers with fewer skills out in the cold.

    Small increases in the minimum wage affect relatively few workers and thus have relatively small effects—just 4,000 D.C. residents make the current minimum wage. Large increases in the minimum wage, however, have large effects.

    Just look at American Samoa. The low-income Pacific Island chain used to have a separate minimum wage. In 2007 Congress decided to align its rate with the mainland rate in 50-cent annual increments. By May 2009, the third scheduled increase took effect, raising the minimum wage to $4.76 per hour—an almost 50 percent increase that now covered two-thirds of the workers in the islands’ tuna canneries, a large part of American Samoa’s private sector.

    What happened? Congress’s good intentions had horrific results.

    The tuna fish canning industry started losing money. One of American Samoa’s two canneries shut down, and the other laid off workers, cut hours and benefits, and froze hiring. Samoan unemployment septupled from 5 percent to 36 percent. American Samoa’s Democratic governor, Togiola Tulafona, begged Congress to stop raising the minimum wage.

    Liberals who favor raising the minimum wage above the productivity of entry-level workers confuse the value of a person with the amount of money they make. But these two have little connection to each other. Every person has immense dignity. Bill Gates has no more or less intrinsic worth than a minimum-wage employee. But workers’ wages cannot exceed the value they produce, or their employers will eliminate their jobs or replace them with more skilled workers.

    Super-sizing D.C.’s minimum wage would hurt the individuals whom council members’ want to help the most. The city council has good intentions, but that does not change where the road paved with good intentions leads.

    Posted in Economics [slideshow_deploy]

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