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Saturday, January 13, 2007

Rising Prices Won't Mitigate Minimum-Wage Effects

Newspaper stories about raising the minimum wage often quote people who say the employment effects of an increase will be held down because sellers will raise prices and pass the extra cost on to their customers. (See this story on the effects of Arkansas's increase last October.)

But not so fast. If prices rise, where will we consumers get the extra money to maintain our present buying patterns? (I didn't get a raise.) If prices go up at my favorite restaurant, I'll have two choices: eat there less often or spend less elsewhere. Either way, jobs are in jeopardy.

Bastiat and Hazlitt were right.

Cross-posted at Liberty & Power.

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