Friday, July 28, 2006

A Zero-Sum Wage

Recently, the Chicago City Council singled out "big box" stores for a special minimum wage: $10.00 an hour, with another $3.00 per hour in benefits. Applying only to companies with stores of at least 90,000 square feet and with more than $1 billion in annual sales, the Chicago City Council ruling effectively shuts out Wal-Mart from within Chicago city limits.

Wal-Mart has historically displayed a willingness to fight. I don’t see a situation where Wal-Mart will quietly acquiesce, paying union-level wages for what is essentially low-skilled labor. The unfortunate thing is that Chicagoans will be the ones to suffer:

1) Wal-Mart will more than likely locate near, but outside, the Chicago city limits; therefore, the city will miss out on any tax revenues from the store.
2) Chicagoans who wish to shop at Wal-Mart will have to travel farther to do so. With lower-priced goods available, many working-class families depend on retailers such as Wal-Mart for school supplies, clothing, and other essentials.
3) Chicagoans who might have worked for Wal-Mart if it were closer will not be able to, unless they want to travel. Many people who would have been earning Wal-Mart’s "low" wages and benefits will now have to do without completely.

What did the Chicago City Council gain? A feeling of "doing something good" for those they consider less fortunate?

This strikes me as one of the worst features of being a Liberal in America today. If you feel good, then it doesn’t really matter who else has to pay for that feeling, or how much they have to pay.

A phrase I read recently in a paper by the Texas Public Policy Foundation struck a chord: ".…Everything a government does is funded by denying property and wealth to private individuals…."

When the government - federal, state, county or city - provides money, goods or services to individual citizens, then other citizens are being deprived of money, goods or services. While the larger economy in a capitalist society is not a zero-sum game (wealth can be created), government spending is zero-sum - if you win, I lose, because the government does not create wealth, it can only redistribute it.

That’s one reason that the Social Security problem must be resolved by turning to the private sector. Only the market can create enough wealth to cover the needs of future Social Security recipients. If we stay in a government-controlled system, it will collapse under its own weight, as fewer earners support more and more recipients.

Business is the same way. If the government forces a company to pay a higher wage to lower-skilled workers, the company has few choices, none of them good:
1) Accept lower profits (unfair to owners and stockholders);
2) Raise prices (unfair to customers);
3) Hire fewer workers to do the same amount of work (unfair to the workers); or
4) Close the doors (unfair to stockholders, customers and workers.)

The choices are restricted because the government can’t legislate increased business for the company to offset the higher expense. Again, with the government involved, the game becomes zero-sum.

"Artificial minimum wages create unemployment, mainly among lower-skilled workers, younger and inexperienced workers, and workers from minority groups….This should not be surprising. Making anything more expensive almost invariably leads to fewer purchases. This includes labor."

This comes from Dr. Thomas Sowell, a PhD in economics and senior fellow at the Hoover institute.

According to the Census Bureau's 2006 Statistical Abstract, there are more than three times as many workers below the minimum wage as are at the minimum wage. Many businesses do not meet the requirements that would force them to pay the federal minimum wage.

Unless the government adds stipulations (e.g., stores with at least 90,000 square feet, businesses open on Sundays, businesses that have the letter "R" in their name), most workers won’t benefit at all from an increase in the minimum wage, and many will suffer. Meanwhile, businesses will be forced into the undesirable choices listed above.

The French phrase laissez-faire -- loosely translated as "hands off" -- historically is used in economics as a warning for the government not to interfere with trade.

The government should, in this case, keep its hands off the wages a company pays its employees.

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