Economic freedom creates better wages than government overreach

Rather than worsen the outlook for small businesses by making employees more expensive, government should step back and allow economic freedom to decide the price of good labor based on the demand.
Blog PostApril 23, 2015

While the battle lines continue to be drawn in the minimum wage debate, employee pay across the country is quietly seeing somewhat of a boost.

The Wall Street Journal explains that market forces outside of government mandates are playing more of a role – for now:

“With the U.S. unemployment rate at 5.5% and salaries rising, many companies are in similar straits. Competition for workers has prompted major employers such as Wal-Mart Stores Inc.WMT -0.14%McDonald’s Corp. and others to raise pay. Those increases have rippled across the economy, forcing finance chiefs, economists and even the Federal Reserve to readjust their forecasts.”

In other words, when employers have to compete for workers, workers often win with higher wages. Business owners understand supply and demand – the greater the demand for a smaller supply of good employees naturally makes these good workers more expensive.

As Andy Puzder, CEO of CKE Restaurants and JCN member pointed out in a recent interview, this is why Walmart decided to pay its workers more – not because of government demands.

But when the government steps in and mandates minimum wage increases, the market becomes distorted. Unfortunately, this hurts small business owners most of all.  The WSJ lists several examples of this distortion including Mahoney’s Garden Centers, whose company controller Joe Fillo says will have to make some tough decisions:

“The company, whose need for workers changes dramatically with the seasons, has eight stores in Massachusetts. The state raised its minimum wage to $9 an hour this year, and it is expected to reach $11 by 2017.

With the average Mahoney’s worker earning more than the state minimum, Mr. Fillo is worried about a bubble-up effect.

If the company boosted wages across the board to keep the spread between new and more senior employees the same, it would add 4% to 5% to payroll costs, he said. While workers haven’t complained yet, he said, “A couple of our stores are understaffed.”

If Mahoney’s gives raises it will expect productivity gains, Mr. Fillo said. He plans to cut costs, possibly by throwing away fewer plants, negotiating lower prices on supplies for the company’s two greenhouses and better managing overtime pay.”

Rather than worsen the outlook for small businesses by making employees more expensive, government should step back and allow economic freedom to decide the price of good labor based on the demand. Let’s not abandon this principle of free enterprise upon which our nation was built.

Read the entire Wall Street Journal article here

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