In my free time last week, I made it out to the theater to see the new Will Smith film, "The Pursuit of Happyness." In the film, Smith's character realizes how brilliant the founding fathers were. They understood freedom, and what a government should and should not do for its citizens. That is why they added the words "the pursuit of" before happiness in the Declaration of Independence. I found this small adage quite remarkable. No government can ever guarantee happiness. The role of government is to ensure that all citizens are able to pursue happiness, not necessarily attain it.
However, politicians usually misinterpret the founders' words. Some politicians, such as the newly elected Democratic majority, feel that the government should guarantee happiness for all Americans by making society more equal. These Democrats promise to come to the aid of the American people by fighting inequality with such policies as the recently passed minimum wage bill. So who are the minimum wage earners in this country? Only 1.5 percent of Americans earn the minimum wage or less per hour. This is a very low number and is overstated by including those who receive tips. Of this small group, more than half are under the age of 24, essentially teenagers and those working part-time in college. Most proponents of a minimum wage hike point to the fact that minimum wage earners live at or below the poverty line. Empirical research, however, states otherwise. Approximately 65 percent of minimum wage earners enjoy family incomes over twice the poverty line. Interestingly, these minimum wage earners are starting to look like me when I was 16, earning the minimum wage and spending my money on video games.
Using a minimum wage increase as a tool to fight poverty not only targets the wrong people, but it also winds up hurting, not helping Americans. To understand this, try to imagine a minimum wage of $25 an hour. No business could maintain such a high wage for its workers and stay in business. These businesses would have to shut down and lay off many of their workers. It would be possible for some of these businesses to remain; however, they would have to raise prices.
This would create high inflation because higher wages without an increase in productivity is inflationary. In reality, businesses are rational, and if they cannot maintain the size of their labor force due to a higher minimum wage, they will simply fire the lowest-skilled workers and demand more work from their other workers. This is a cruel effect for a policy that was intended to help poor people.
Legislation like minimum-wage hikes, which aim to manipulate income distribution, is simply bad policy. It assumes that people in various income groups stay in those income groups (i.e. the poor remain poor). However, most Americans move between income groups quite often and many times skip income groups. For example, a law school student can move from poverty wages to high income levels in a matter of days (after graduation). And in particular, 75 percent of all minimum wage earners move to a higher wage within a year.
In fact, inequality is needed in a society. An individual can't simply attain wealth after one year in the economy. They must work their way up the ladder, and to do so they need entry points into the economy. These entry points are those low-wage jobs (such as minimum wage jobs) that so-called liberals rail against. We must preserve these jobs, not destroy them through legislation. Therefore, instead of having a government that tries to bring about equality of outcome through redistribution, we need a government that will work to ensure equality of opportunity through education. It is only through the latter that a government can truly guarantee every America the pursuit of happiness.
Jared Kotler is a graduate student in the School
of International Service and Kogod School of Business. To read more from Jared, visit http://econfreedom.blogspot.com.
