Saturday, December 31, 2005

The Wrong New Year's Resolution

Ahnold (California's dear Governor Schwarzenegger) has decided to cave in again to his Democrat thorn-in-the-side legislators and their constituents. He's been under pressure from them all year to tie the California minimum wage to the inflation rate, and he's just proposed a New Year's "compromise."

California has already got one of the higher minimum wage rates in the country ($6.75) and parts of it have the highest (San Francisco at $8.50.) We probably also have one of the highest cost of living indices, so it may seem to make sense; but first of all, legislating a minimum wage is irrelevant because the current market for labor is generally well above those rates. (I suspect the politicians are just milking our empathetic emotions for the grandstanding effect.)

Secondly, it's all about what I call the employment pyramid. At the pointy top, you have employers like Merrill Lynch who can afford to give out million-dollar bonuses to their key people. Even the secretaries are getting thousands. Obviously, these elite employers could care less about the minimum wage.

At the bottom, you have millions of tiny employers who have one, ten or maybe 100 employees. These people employ the majority of the population. They are the country's larger pyramid base. Right now, they might not care either about this legislation because things are going well. However, imagine that there were even a small, normal-sized slowdown in the economy. Placing a bar on low wages may prohibit the wide bottom rung of employers from hiring or even retaining workers.

Is that really what we want to do? It will snowball the downturn at an increasing rate, encourage a hiring freeze, maybe throw the economy into subzero, increase unemployment and burden government budgets that are already strained in the best of times.

But who's listening to me?


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