Why does raising the minimum wage not "work"?

          From “The President of Inequality” in the Wall Street Journal, October 6, 2014

“...the Nancy Pelosi Democrats raised the minimum wage in three stages to $7.25 an hour in 2009 from $5.15 in 2007. If mandated wages are so beneficial to the American worker, where is the evidence?

The Census data show that every income group that was supposed to benefit from the higher wages is worse off than before the minimum wage was increased. This is because the benefits of mandated wage increases for some workers are dwarfed by the overall negative economic trends of slower growth and reduced opportunity.”

We actually do operate in a free society.  Government may operate “businesses,” and this may impact the private operation of business in the same or similar areas.  But operators are free to compete with government and private entities alike.

Business owners are free to set policies, including pay policies.  Things like minimum wage laws do not work because they try to mandate the pay policies of private operators and they only do so with one category of worker, the minimum wage worker.  For wage laws to have real impact, they would have to target all workers.  That would be a massive reach that we would never allow.  But because of our freedom to compete, without that sort of scope, there can be no impact.

Employers who are faced with the artificial increase in one form of input (the kind of labor that earns the minimum wage) can decide to get the desired output from a different type of input, like technological automation.  CKE CEO Andy Puzder makes this point in the Wall Street Journal editorial Minimum Wage, Maximum Politics:

But here’s what middle-class business owners, who live in the real world, will do when faced with a 40% increase in labor costs. They will cut jobs and rely more on technology. Such changes are already happening in banks, gas stations, grocery stores, airports and, more recently, restaurants. Almost every restaurant chain in the country from Applebee’s to McDonald’s is testing or already implementing automated ordering with tablets or kiosks.

To be sure, I don’t believe that individual choices like these combine to drive inequality.  I assume that the freedom to make choices leads to the ability to make fortunes and that this causes employment opportunities that help people make lives.  But I do believe that the freedom to compete is the reason that targeted laws like the federally mandated minimum wage do not achieve the desired effect.  And the only way to change that is to federally mandate all wages and all competitive decisions.

Again, we would (hopefully) never allow such policies.  So it is a good thing that Mr. Puzder is most likely correct that the calls for a higher minimum wage are not genuine attempts to reduce inequality but genuine attempts to drive votes.