Posted by: bridget | 3 February 2007

These are not Independent Variables

A flurry of news stories regarding the US economy and border patrol are out. First off, the Senate passed a minimum wage bill that includes tax breaks for small business. (The House bill, however, does not include any breaks for small businesses.) The unemployment rate rose slightly, to 4.6%, at the end of 2006. Illegal immigrants are crossing the border en masse, which creates a nightmare for government agencies who arrest and try them.

Putting all of this together, the disaster is obvious. The minimum-wage increase should be done on a state-by-state basis, and the increase disproportionately affects small businesses. (See previous blog entry.) Ultimately, the minimum wage has changed from its original inception in the 1930s (a mechanism to avoid strikes over unfair, unsanitary, and unhealthy labour conditions) and the current liberal viewpoint of a way for a single breadwinner to support a family of four. The idea that a high school student should earn enough at the KMart cash register to live on his own and support three of his friends is absurd; no more sensible is the idea that a single breadwinner should be able to flip hamburgers and support his stay-at-home wife and two kids. Even if the minimum wage should be a living wage, the starting assumption should be a two-income household. That would cut the “living wage” in half, to approximately $5/hour. Of course, this is less than the federal minimum wage, which tells us that a two-parent family should be able to support themselves and their kids while working at Wal-Mart ($5/hour x 40 hour/week x 50 weeks/year x 2 earners = $20,000/year.)

House Democrats are attempting to bifurcate the Senate minimum wage bill into a minimum-wage segment and a tax break for small business segment. Of course, Democrats would love to pass the former and weasel out of the latter, so such bifurcation wouldundermine the balance of the bill.

These are not unrelated issues. If the bill passes the House, businesses that seek to control labour costs would either cut hours or cut employees, further exacerbating the downturn in the employment rate. The unemployment rate will continue to rise as more illegal immigrants come into America (and as Border Patrol runs short of resources to control the flood). As the minimum wage increases, businesses will benefit more by hiring illegals, which gives a perverse incentive to have a different, de facto minimum wage in border towns, not hire Americans, and gain a competitive advantage over businesses that hire citizens or legal residents and incur more costs.

The way to solve the unemployment problem and the illegal immigration problem is not to give incentives to businesses and illegals to aggravate the situation by radically increasing minimum wage.

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