On Jan. 1, Arizona's minimum wage increased 10 cents. This is bad news for those unskilled workers seeking employment, but not as bad as the whole notion that minimum/living-wage laws help the poor.
Our Arizona law was voted in by referendum in 2006. Unlike the federal law, Arizona's minimum wage is indexed to the "cost of living" and adjusted annually. The stated intent of these laws is to raise incomes of the working poor to a level at which a head of a household can support a family. As the late Sen. Ted Kennedy said, "I believe that anyone who works 40 hours a week, 52 weeks a year, should not live in poverty in the richest country in the world."
This kind of thinking assumes that wages are arbitrary, and they might just as well be set arbitrarily much higher. Unfortunately, wages are not arbitrary. George Mason University economics professor Walter E. Williams points out, "It's breathtakingly stupid to think of minimum wages as an anti-poverty tool. If it were, poverty in places such as Haiti, Ethiopia and Bangladesh could be instantly eliminated simply by proposing that these country's legislators mandate a higher minimum wage."
Minimum-wage workers make up only 3 percent of the workforce, and only half of those workers are full-time. Most of these workers are not making the minimum for long. Socioeconomic levels are not fixed; people are not stuck in the economic class into which they were born—not in this country. As workers acquire knowledge and skills, their productivity increases, which is followed by wage increases. In fact, the pay of a minimum-wage employee increases an average of 30 percent within the first year of employment. "Entry-level" jobs are just that—a place where a worker can enter the workforce.
I have demonstrated this myself. I recall a time when I was desperate to enter the workforce. I would go down to the moving-company warehouse and stand outside a loading dock with a bunch of other guys early in the morning. At around 6 a.m., the door would roll up, and a guy with a clipboard would look us over and point to someone and say, "You, with him," and point to a driver on the dock. The lucky guy would scramble up next to the driver. This was repeated a few more times; then the door came down, and the remaining guys wandered off. That was below entry level, because I was not even an official employee, yet I learned on the job, moved to a better moving company, learned more on the job, became a driver, learned more, and then went to work for IBM. All this was done in two or three years.
So, if the minimum-wage worker is such a small part of the workforce, and few workers stay at that level, why do big labor unions spend millions of dollars promoting these laws—particularly when none of their constituents are minimum-wage workers? The answer isn't pretty: If the cost of unskilled workers is set artificially high, then they will not be employed. This effectively sets work aside for union members by shutting unskilled workers out of the job market, denying them their chance. Dr. Williams puts it succinctly: "They do it because higher minimum wages protect their members from competition with low-skill, low-wage workers. Most other minimum-wage supporters are decent people with a concern for low-wage workers, but their actions suffer from a misguided vision of how the world operates."
Municipalities are subject to the same incentive when it comes to living-wage ordinances. Jacking up labor costs for potential private-sector contractors tends to keep more city work in-house.
I would also like to suggest a moral aspect: The essence of a free society is the ability to enter into contracts with others without undue interference from the state. If the government can control your ability to sell your labor, then it effectively owns your labor—not quite like an antebellum plantation owner, but you get the idea.
Clearly, the best thing for a poor person is to start working at a wage concomitant with his productivity so he can get in the game. Soon, he will learn skills and move up to bigger and better things. He should not be shut out of the labor market for the benefit of the more-prosperous and well-connected.