Double Trouble?

Should we double the minimum wage?

That’s what entrepreneur Ron Unz thinks. He proposes to increase the minimum wage in California $12 an hour. Some other folks want to increase it to $15 per hour. They claim that higher wages will lead to higher spending, and this will stimulate the economy. In addition, companies like Wal-Mart or McDonalds can afford it. Wal-Mart’s net profits were $17 billion last year; McDonalds made $5.5 billion. But those companies’ biggest expense is labor; if the minimum wage were doubled, profits would fall by about a third. Companies would respond by raising prices and eliminating jobs.

But that’s just what Ron Unz wants. He says that the low-pay, low-skill jobs are exactly what America doesn’t need. A higher minimum wage would eliminate the lowest-rung jobs that currently draw illegal immigrants. Manufacturers would relocate factories overseas, and entry-level services would be replaced by people doing things themselves. But these effects wouldn’t be limited to immigrants—everyone would suffer.

When you artificially raise the price of something you reduce demand and increase supply. Raising the price of labor will cause businesses to cut jobs and increase—not decrease—competition for the entry-level jobs that remain, hurting those that higher minimum wages were supposed to help.

You can’t change the laws of economics via legislation. What we need are more jobs. This isn’t the way to get them.

Douglas R. Tengdin, CFA

Chief Investment Officer

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