Sunday, October 27, 2013

How to prevent low skilled people from working

Eric Liu, a former speech writer for Bill Clinton, talks about Sea Tac, WA proposal to raise the minimum wage for hospitality and transportation workers to $15/hour.

What is especially annoying about Mr. Liu's article is his complete ignorance of economics. He writes:

"The economic rationale for a minimum wage hike is that it creates a virtuous cycle of increasing demand: When workers have more money, businesses have more customers, which means businesses hire more workers, which in turn generates more customers. Customer creation begets job creation, from the middle out and bottom up."

No serious economist would ever agree with this statement. There is no virtuous cycle of demand created when money is taken from one group (business owners and consumers) and given to another (workers). Productivity increases that lead to higher wages will increase the demand for some goods, but taking money from one person and giving it to another will not increase the demand for all goods and services. It will simply reallocate purchasing power.

See my other blog posts here and here for the economic truth about the minimum wage.