November 19, 2012

A Minimum Wage Hike . . . Good for Missouri?

Beginning Jan. 1, due to a ballot initiative approved in 2006, Missouri will see its minimum wage increase by 10 cents. There is a healthy debate as to whether this wage increase is a good thing for Missouri. Advocates for the wage hike argue that increasing the minimum wage will increase the buying power of low-income workers. Opponents of the minimum wage increase argue that increasing the minimum wage will hurt Missouri’s business competitiveness.

Who is right? According to research conducted for the Show-Me Institute, David Neumark, an economics professor and director of the Center for Economics and Public Policy at the University of California-Irvine, found that there is no evidence to suggest that increasing the minimum wage will help stimulate the economy. Nor is there a basis for concluding that minimum wages help reduce the proportion of families living at or near poverty. In fact, according to Neumark, “Minimum wages can have unintended harmful distributional effects — possibly increasing the number of poor or low-income families.”

A 10-cent increase in the minimum wage is not going to change things much one way or another. However, even if the minimum wage were to increase by $1 an hour, there are still better ways to help poor people. In Neumark’s paper, he suggests expanding the Earned Income Tax Credit (EITC) as one way to help poor families. Patrick Ishmael and I think eliminating the corporate income tax and the tax on small business income will enable Missouri businesses to further expand their businesses and create jobs.

Despite what a majority of Missouri voters thought at the time, the automatic increases to Missouri’s minimum wage are not good for the state. Markets should determine wages, not government. The state would be better served if, at the minimum, it would desist with the automatic wage increases.

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