Minimum Wage Hike to Go Into Effect Within 24 Hours

The Federal minimum wage is set to be hiked more than $0.70 per hour, effective tomorrow (Friday, July 23, 2009). According to the Associated Press, this will have a direct influence on the approximately 30 states that have lower state-mandated minimum wages than the Federal level. It is expected that in the short-run, many small businesses will lay off a portion of the payroll in jobs such as dishwasher, hotel laundry, and such.

Even though I'm a fiscal conservative and social liberal, I tend to believe that the free markets will absorb this sort of cost increase by driving increases in productivity. To give an extreme example: If you own a small restaurant and the government mandates that all dishwashers should be paid $15 per hour, you are going to fire your dishwashers because someone, somewhere is going to create a self-cleaning, high-capacity, completely automated dish washing system. Even if it costs you $20,000 or $40,000, the savings will pay for themselves in a few years in the form of lower payroll.

The goal should be to ease these changes into the system over a number of years, which I think the current law does well. In the short-run, a handful of low-wage earnings will end up with more money with others losing their employment. In the long-run, I think the productivity gains will help increase national wealth so, frankly, I think the minimum wage law can actually be used to push long-range GDP upward provided it is done correctly and for the right reasons. (GDP stands for gross domestic product and is a measurement of the total economic activity in a country.)