Obama Uses Pen to Price Workers Out of the Market

President Obama made good on a threat…ah, promise…yesterday and, using that executive order pen he likes to talk about and wave around, raised the minimum wage for federal contractors from $7.25 to $10.10, representing a nearly 40% spike:

Mr. Obama said the federal minimum wage needs to be raised across the board because the current rate, due to inflation, “is worth about 20% less than it was when Ronald Reagan took office – 20% less, a fifth less.”

The move is the first step in a broader fight over the minimum wage being pushed by Democrats during an election year and part of the president’s effort to narrow the income inequality gap. (Our colleagues at the Real Time Economics blog take a look at who benefits from a higher minimum wage.)

Now, it’s just for federal contractors — with, to WSJ’s point, an eye toward a campaign issue — but it’s still not a very good sign because it’s likely a shallow move to gain political favor that sets a bad example for a couple of different reasons.

First, it’s yet another swipe at Congress who, as much as they are fairly maligned, are still the colleagues with whom our President must work. And quotes like this one are, frankly, rude and counter productive:

“While Congress decides what it’s going to do — and I hope this year, and I’m going to work this year, and urge this year that they actually pass a law — today I’m going to do what I can to help raise working Americans’ wages,” Obama said, to applause, during brief remarks before signing the order.

Putting down your co-workers is generally not a very smart move. Unless, of course, you think you don’t need them. And we all know that guy in the office, right?

Second, it does set a precedent and begins dissemination of the fiction that a minimum wage hike actually helps the poor, something those with a genuine need for compassion will gravitate toward.

But it’s not true. Here’s the deal — it all comes down to cost/benefit. If you own a business and you have one employee that, due to his work, allows your business to earn on average $9 more per hour, you would be losing money to hire that employee at a rate higher than $9.

There’s plenty of evidence to suggest — starting with common sense — that most businesses crunch the numbers and find that minimum wage workers coming in at a higher rate are simply too expensive for them to hire. Which means THEY WON’T HIRE THEM because they can’t afford to.

Now, I guess Obama can start using that pen to force businesses to hire people. If that sounds insane remember that, in today’s world, that’s not outside the realm of possibility. After all, how different is forcing companies to hire people because of a federal policy than forcing them to swear they’re not firing due to a federal policy?:

Obama officials made clear in a press briefing that firms would not be allowed to lay off workers to get into the preferred class of those businesses with 50 to 99 employees. How will the feds know what employers were thinking when hiring and firing? Simple. Firms will be required to certify to the IRS – under penalty of perjury – that ObamaCare was not a motivating factor in their staffing decisions. To avoid ObamaCare costs you must swear that you are not trying to avoid ObamaCare costs. You can duck the law, but only if you promise not to say so.

At any rate, Fox News columnist Peter Morici is probably right that businesses — should this hike be generally implemented — will turn toward technology in lieu of hiring low-skilled workers. And, according to a poll published by Reason, despite our better natures wanting desperately to help, people don’t really support this hike if it means fewer jobs.

But President Obama, apparently, as he keeps reminding us, can do what he wants.

 


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