Killed by the ‘Living Wage’

by | Jan 1, 2003 | Price Controls

Businessmen in Santa Fe, New Mexico, are going to court to defend their most basic economic right–the ability to voluntarily negotiate wages with their employees. Last month, the Santa Fe city council voted to raise the minimum wage to $10.50 per hour over the next five years. The local chamber of commerce and a group […]

Businessmen in Santa Fe, New Mexico, are going to court to defend their most basic economic right–the ability to voluntarily negotiate wages with their employees. Last month, the Santa Fe city council voted to raise the minimum wage to $10.50 per hour over the next five years. The local chamber of commerce and a group called New Mexicans for Free Enterprise filed suit this past Monday, arguing the city’s action violated the state and federal constitutions as well as antitrust law.

The Santa Fe ordinance, drafted in large part by the leftist Brennan Center for Justice at New York University, is dubbed a “living wage” law by supporters, who argue Santa Fe’s high cost of living-reportedly 18% above the national average–justify forcing businesses to pay their employees more.

Minimum wage laws attack the basic premise of capitalism: supply and demand. It compels businesses to pay a fixed amount for services even when the value of that service is less than the prevailing statutory wage. In turn, this forces businesses to adjust their employment practices to meet the arbitrary whim of government officials, rather than acting in the interests of producing a profit to remain in business. Most interestingly, high minimum wage levels often cause low-wage workers to be let go, seemingly defeating the intent of the law.

Minimum wage laws amount to a tax–the appropriation of private property for government use. Minimum wage laws increase the cost for businesses to operate, which help to increase the overall cost of living in an area–which, ironically, is the reason Santa Fe passed the wage increase in the first place, to offset the higher cost of living.

Before looking to punish businesses (admittedly an easy answer for politicians), Santa Fe officials should look to see how their own tax and regulatory policies prevent businesses from creating more jobs. Perhaps opening the city up to more capitalism would, in succession, free businesses to spend more of their own money on growth and expansion, ultimately creating better paying jobs without coercion.

Even New Mexico’s new governor, former Clinton administration official Bill Richardson, has called for his state to cut taxes. When a prominent Democrat considers businesses and individuals overtaxed, Santa Fe officials should listen. Instead, they’ll proceed to waste more tax money defending their minimum wage hike in court.

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S. M. Oliva is president of Citizens for Voluntary Trade and a senior fellow at the Center for the Advancement of Capitalism.

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