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October 14, 2015

The Minimum Wage Is A Price Control On Labor

  Institute for Policy Innovation

DALLAS – In Tuesday’s Democratic debate, Sen. Bernie Sanders called for more than doubling the federal minimum wage to $15.00 an hour—a move that would hurt the poor by pricing workers out of the labor market and killing jobs.

“Price controls, whether for products or labor, do not work,” said Institute for Policy Innovation (IPI) resident scholar Merrill Matthews, Ph.D., in a new publication, “The Minimum Wage Is A Price-Control Debate.”  “When the government attempts to manipulate prices through arbitrary price controls—including setting artificially high prices through a minimum wage—it discourages people (i.e. employers) from consuming as much as they otherwise would,” said Matthews.

Price controls distort important information that consumers and employers use to make decisions, and instead of helping the poor, they almost always hurt them, Matthews said.  “In a free economy, consumers (employers) should be allowed to agree with sellers (workers) on what price will be paid.”

Matthews also points out while a small increase in the minimum wage—from $7.25 an hour to $7.30—may make little difference in employers’ hiring decisions, a Sanders-style doubling of the federal minimum wage—especially in rural areas in which the cost of living is significantly lower than in other areas such as New York or San Francisco—would be economically catastrophic for workers.  

“A minimum wage increase to $15.00 an hour would have a devastating impact on job availability. Add another $4,000 a year that employers will have to pay for employee health coverage, thanks to President Obama, and the increase jumps from about $15,000 a year under the current minimum wage to $35,000,” said Matthews. “How many consumers would have bought their last car if price controls had doubled its price?”

Matthews warns that although some employers would have no alternative but to pay the higher minimum wage, many have the option of moving to labor-saving technology, such as software or kiosks, to take an employees’ place.

Minimum wage mania has gotten out of hand, said Matthews. “Politicians are trying to outbid each other—only they’re doing it with employers’ money, not their own. And they are getting a lot of support from low-paid workers who may soon find themselves unemployed.”

 

Merrill Matthews, Ph.D. is resident scholar with the Institute for Policy Innovation (IPI), an independent, nonprofit public policy research organization based in Dallas. He is available for interview by contacting Erin Humiston at (972) 874-5139, or erin@ipi.org. Copies of “The Minimum Wage Is A Price-Control Debate” are available at www.IPI.org.

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