Higher minimum wages destroy jobs

“Better education! More jobs! Raise the minimum wage!” So began a message anonymously posted on Bruce Lloyd’s online forum (www.bloydmedia@saipan.com).

More jobs? Raise the minimum wage? How many times must we go through this?

OK, one more time, Northern Marianas: Raising the minimum wage would not create more jobs. On the contrary, it would only serve to discourage productive investment and kill job creation!

Just ask any decent economist. Ask Ed Stephens, for instance.

If raising the minimum wage actually creates more jobs, then let us raise our minimum wage to $50 an hour and see exactly how many new jobs we would create. At a $50 an hour minimum wage, the demand for employment would certainly be quite high, as thousands rush to take advantage of the lavish–absolutely exorbitant–minimum wage.

But in this case, the demand for jobs would not automatically trigger its supply. At such exorbitant costs, few employers would be induced into a hiring frenzy.

Employers and business-owners must contend with a vast array of expenses, everything from high taxation, inventory, to miscellaneous operating costs. Yet, of all their expenses, their labor costs are usually among the most cumbersome and costly of all. This is particularly true in labor intensive industries such as garment manufacturing and tourism, our mainstay industries. And the problems of a weak local economy, declining tourism, and dwindling garment industry revenues only exacerbate our private sector’s already substantial labor costs.

If job creation alone is the sole criterion, a reduction in the minimum wage should be vigorously pursued, for the simple reason that lower wages should spur employers to engage in more hiring, just as a lower price for Spam would very likely induce most local families to buy more cans of it.

Although technically a service, labor is essentially a product traded and sold on the relatively open market. If you want employers to buy more of it, you do not raise its price. Instead, you reduce the price so that more employers are tempted to buy more of it. You put in on sale, in effect.

Every time the minimum wage is raised, the type of labor in question (that is, the labor typically sold at that minimum wage rate) becomes less attractive, resulting in fewer buyers or takers. The higher that wage is raised, the less attractive that labor thereby becomes. Expenses rise and precious profit margins are squeezed. A struggling business could easily go bankrupt.

Since the Asian financial crisis of 1997, more than a thousand businesses–including Wendy’s–have closed shop. Let’s not add to the private sector’s already formidable burdens. Let’s not kill more businesses and jobs. Reject minimum wage increases once and for all and let the market decide what it can and cannot afford.

As for a “better education,” let the people remember that the government never gets it right.

Strictly a personal view. Charles Reyes Jr. is a regular columnist of Saipan Tribune. Mr. Reyes may be reached at charlesraves@hotmail.com