Ditch minimum wage; help the poor

Hawaii’s Legislature did not approve a higher minimum wage this year, and that’s a good thing, if you want to help the poor.

In 2010, researchers from the National Bureau of Economic Research and the Federal Reserve Board compiled the results of 53 scholarly studies into a book, “Minimum Wages” (MIT Press, 2010), with the authors concluding:

“Based on the evidence from our nearly two decades of research on minimum wages, coupled with the evidence accumulated from an impressive body of research conducted by others, we find it very difficult to see a good economic rationale for continuing to seek a higher minimum wage.”

The authors found overwhelming evidence that minimum-wage laws reduce the employment of low-skilled workers and increase the prices of goods and services.

There is “no compelling evidence that minimum wages on net help poor or low-income families, and some evidence that minimum wages adversely affect these families, and increase poverty,” they noted.

This conclusion, of course, only reinforces what economic theory already tells us, that interfering with the natural forces of supply and demand will have adverse consequences. If the cost of labor is raised above the “natural” market rate, the number of jobs will go down, or at least not increase.

With more workers applying for fewer jobs, employers naturally pick the highest-skilled workers who apply, leaving lower-skilled applicants unemployed. A mandated minimum wages thus takes away an important bargaining chip for lower-skilled workers: namely, the ability to offer to work for lower pay to compete against higher-skilled applicants.

The lesson is that instead of continuously trying to raise Hawaii’s mandatory wage floor, state policymakers should empower lower-skilled workers by removing the state’s minimum-wage laws completely, or at least leave them alone until inflation makes them irrelevant (the crime of inflation being another issue entirely).

Not only would that be smart policy, supported by both empirical research and economic theory, it also would be the right and humane thing to do.

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