Matthew Jones: Minimum wage rises destroy jobs for those most in need

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Photo / Thinkstock
Photo / Thinkstock

I read with astonishment the contribution on Friday from Julie Fairey who seemed unaware of the facts of minimum wage increases and their dire, unintended consequences.

There is little doubt that we desire higher wages and higher standards of living for our society but this cannot be done through legislation.

The effects of a minimum wage increase, despite their good intentions, have led to those whom it is intended to help being unemployed or finding it more difficult to find jobs and learn skills as the incentive to hire gets legislated away.

American Samoa had a terrible case of this when the federal Government increased minimum wage up to US$7.25 an hour, in some cases an increase of $4 an hour.

This is good isn't it? High incomes and more economic demand as Julie Fairey "argues". Well no, what happened was a mass exodus of jobs, one fishing and canning company slashing thousands of jobs on the island nation, sending them to the US state of Georgia.

Those earning around US$4 an hour now had nothing and American Samoa lost enormous job-creating investment that now headed to a small town in southern America where more skilled labour can justify the higher costs.

You could increase the wage to $100 per hour, surely even a diehard socialist could see the damage it would do. But the principle is the same at every level. The ripple effect of these job losses caused by such intervention in the market can be devastating.

Representative Dan Lankilde of American Samoa told a Reuters journalist in 2009, "Over the past 50 years the industry provided massive job opportunities for unskilled labour.

"The 2007 law that increased the minimum wage was the beginning of the end for the tuna industry and the cause of massive job losses for our already fragile economy.

"The only way to resolve the trend towards total economic disaster is for Congress at its soonest opportunity to reverse its position."

Although many who study minimum wage come up with differing opinions about the amount of job losses due to minimum wage increase, the most devastating is surely what is unseen.

What we don't see is the entry level jobs that could have been created if legislation did not distort the market, jobs that would have allowed those unskilled, maybe currently on the dole, to earn an income and provide them with hope for the future.

Have you ever wondered where those ushers went from movie cinemas? Or window washers at service stations? Bag packers at supermarkets?

There is no point in the employer hiring if the cost is greater than the value produced. This is a law that tells employers to discriminate against the young and unskilled.

It is no coincidence that youth and minority unemployment is much higher than the national average. And indeed no coincidence that it was not always like this.

These are the less skilled workers that since the adoption and increases of minimum wage laws have had job and internship opportunities dry up relative to what we could have had. The opportunity to become more skilled and move up the ladder to command higher wages dries up with it.

Wages are a function of productivity; therefore the focus to increase wages must be through learning new skills and improving educational achievement, particularly for those in the poor areas who cannot afford to escape the government monopolised education system.

I understand that most of those wanting a higher minimum wage do so with good intentions but the consequences to the poor, cutting off their means of making a decent living and giving them a way out of the vicious cycle of poverty will do more harm to the social fabric than we can imagine.

Matthew Jones is a student of commerce and property at the University of Auckland.
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