Sunday, February 11, 2007

Warm Fuzzy Liberal Fantasy Meets
Cold Hard Economic Reality

Saw an interesting headline on Drudge today. The headline reads: "New Wage Boost Puts Squeeze on Teenage Workers Across Arizona". What could that mean, I wondered? :-)

The key fact of the story is:
Some Valley employers, especially those in the food industry, say payroll budgets have risen so much that they're cutting hours, instituting hiring freezes and laying off employees.
Welcome to the real world liberals. Like so many other liberal fantasies, minimum wage laws tend to have just the opposite effect of the feel-good intentions of their liberal sponsors. When liberal politicians pass minimum wage laws, those laws hurt rather than help low-wage, unskilled workers.

As the article demonstrates, when labor costs to business go up, those business owners have to make up for it somewhere else. 'Somewhere else' often means cutting the number of employees to offset those increased labor costs.
Mark Messner, owner of Pepi's Pizza in south Phoenix, estimates he has employed more than 2,000 high school students since 1990. But he plans to lay off three teenage workers and decrease hours worked by others. Of his 25-person workforce, roughly 75 percent are in high school.

"I've had to go to some of my kids and say, 'Look, my payroll just increased 13 percent,' " he said. " 'Sorry, I don't have any hours for you.' "
This article focuses on teenage workers, but the principle applies just the same to other businesses. For example, say you have a factory making some kind of low tech widget. Since making the low tech widget doesn't require a highly skilled or educated workforce, you hire workers without much education and/or experience and pay them the minimum wage.

You have, say, 50 workers earning the minimum wage ($5.15/hour). So, 50 workers times 40 hours/week times $5.15/hour means your weekly labor cost is $10,300. Along comes some liberal activist who thinks it would be very compassionate of him to agitate Congress to pass a law giving all your workers to get a nice big raise to say, $7.25/hour. (Ever notice how liberals are so eager to spend other people's money?)

Assuming Congress passes the law, you're weekly labor cost just went up to $14,500 -- an increase of approximately 40%. Now, unless you happen to be the world's sole supplier of low tech widgets, you can't just increase your prices 40% to make up the difference. And it's unlikely that the profits you make on your law tech widgets are so high that you can simply absorb the addtional cost. So, you're left with the reality that you need to cut your costs of production. The easiest place to cut is your labor costs. So, in order to pay the higer wages and maintain a weekly labor cost of approximately $10,300, you'll need to fire 14 of your workers. Of course, since you still need to produce the same amount of low tech widgets, the remaining workers will need to work harder to cover the tasks of the workers who've been let go.

Gee, thanks Mr. Warm and Fuzzy Liberal. Thanks to your "compassion", 14 people just lost their jobs and the "lucky" 36 who got to keep their jobs get to work a lot harder. That's OK though, being a liberal means feeling good about yourself because you're so compassionate.

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