I hate it when the dogmatic-free-market side of me emerges, because I've really tried hard to repress it lately. But I'm rather skeptical of Ron Unz's proposal
to raise the national minimum wage to $12.
Unz's logic is appealingly simple - if we want to raise the incomes of the poor, then let's just raise their wages! And while this would be a pretty dramatic raise for current minimum-wage earners, it would only raise Walmart's costs, for example, by an average of 1.1% spread across it's sales. So what's the big deal?
One big deal is the assumption that this increase would just be passed on to the consumer. But the issue of how cost increases are absorbed is far from well understood. The logic here is that since it's across the board - i.e., everyone has to pay the increased wage - then there's no competitive pressure to keep prices down. If you unilaterally raised your worker's wages 65%, you'd have to eat that increase, since you couldn't get away with raising your prices while your competitor's kept theirs in place. But if everyone raised their payrolls at the same time, then hell, let's just raise the prices!
But it's not that simple. In the case of Walmart - where no one who doesn't own Walmart would mind if the increase came out of profits - could no doubt get away with raising prices. Would it really be a big deal if they charged $8.73 for a Chinese-made hammer vs. $8.59? But for smaller businesses, it may be tough to get away with raising their prices. More likely, the impact of the wage increase will be shared: owners will see lower profits, customers will see higher prices, and some workers will be laid-off.
Still, no big deal. The total increase in wages among the unskilled after the increase would no doubt (in my mind, anyway) exceed the loss of wages among those fired after the increase. At least at first. But..but..well I hate to state the obvious, but this does nothing to change the underlying socio-economic conditions that have led to this sad state of affairs where so many workers earn so little. The ruthless quest for those very same profits will not be quelled by a mere change in a posted wage minimum.
Low wages can only result from one or both of two things: low demand for labor and high supply of labor.
The easiest of these to tackle is supply. We can dramatically reduce the supply of low-skilled labor by sharply reducing the level of immigration and by aggressively deporting as many current immigrants as is feasible. Of course President Obama, the man allegedly so concerned about inequality, is bound and determined to do just the opposite.
The best way of course to increase demand is to grow the economy at a considerably faster pace - but no one seems to know how to do that. We could, however, try to increase demand "artificially." One way would be via import restrictions - tariffs and the like. This would require more goods to be produced domestically. Prices would of course go up rather noticeably, but so would employment. On the down side, our exports would be affected as well. But since the U.S. runs a massive trade deficit, there would undoubtedly be a net gain from increased domestic manufacturing. Here again, Obama is moving in the opposite direction, pressing for yet more free-trade agreements.
A less obvious benefit of both immigration and trade restrictions would be an increase in national cohesiveness. Less immigrants would mean less cacaphonous discourse from multi-lingual communities, less ethnic conflict, less ghetto-ized neighborhoods from rootless migrant laborers. Fewer imports would mean a greater sense of pride in a "Made in America" ethos. Samsung is a fine company, no doubt, but I think it would be better for America if the centerpiece hanging on the wall the American home were actually made in America.
I like that Mr. Unz is trying to do something about this problem that does not involve yet more socialistic engineering, but I don't think it's going to work.