Supply, Demand, And The Minimum Wage

Early last week, Lindenwood University Professor and Show-Me Institute Fellow Howard Wall debated the merits of raising the minimum wage on St. Louis Public Radio. It was an interesting discussion, but  one thing stuck out for me. In the debate, Chris Sommers, who co-owns Pi Pizza and is in favor of raising the minimum wage, stated that (at 5:37), “We raised the wage in order to also attract better people.” This was said in the context of Pi raising the wages its pays its employees.

This is interesting because Pi raised its wages voluntarily. It didn’t need the government to mandate a hike in pay, it chose to do it because it made sense from a business perspective. That is how it is supposed to be. In fact, that is what businesses do. They pay their workers a competitive rate commensurate with the value that these employees generate for the business. If they pay their employees too little, other businesses can offer these workers a higher rate and they will leave. Sommers mentioned his workers moving to another business because it offered a 25-cent increase in hourly wages (at 4:30). This is the market working.

Take what happened in North Dakota as an example. Because businesses were so desperate for workers, even fast food establishments had to significantly increase what they would pay their employees. For example, Taco John’s, a local area fast food restaurant, had to offer new employees $15 an hour salaries in order to get them to work there.

I want to help the poor do better, but there are betters options available than raising the minimum wage, like the Earned Income Tax Credit. This would ensure the benefits would go to the people who really need them, the working poor.