I’ve heard a lot recently about a need that corporations be required to pay a “living wage” in this country.

A “living wage” is really just the minimum wage revisited under another label. While the idea sounds good on paper, it has some catastrophic effects in practice.

Supply and demand govern our economy. When prices are high, people tend to buy less. When prices are low, people tend to buy more. Labor is no exception. When the cost of labor increases, employers “buy” less (fewer workers) and seek substitutes, such as automation.

The basic definition of a “living wage” is a sufficient income to support a family of four on one paycheck. Those who push for a living wage talk about families who can’t support themselves on the minimum wage.

According to the Bureau of Labor Statistics, only 2.2 percent of working adults earn the minimum wage. Of those earning minimum wage, only 5.3 percent come from households below the official poverty line. Forty percent of minimum wage earners live in households with incomes of $60,000 or more. More than 82 percent do not have dependents.

According to a study by the Cato Institute, less than one-fifth minimum of all wage workers has a family to support. Most are young people just starting out in the working world. People in minimum wage jobs do not stay at the bottom, said Dr. Thomas Sowell, an economist and senior fellow at Stanford University’s Hoover Institution. Pay increases as a worker gains experience and skills. It increases an average of 30 percent in the first year of employment, according to the Cato Institute. Other studies show that low-income people become average-income people in a few years and high-income people later in life, Sowell said.

Higher minimum wages actually cause unemployment, mostly among low-skilled workers, according to Dr. Walter E. Williams, an economist at George Mason University. If you say a business has to pay each employee at least $7 an hour, that business is going to start requiring more qualified workers to get the best value for its money. The employee who may only have the skills to produce $5 worth of work in an hour is going to find himself out of a job — which deprives him of on-the-job training that could improve his financial situation later.

It’s better to be employed at $5 an hour than unemployed at $7.

Where minimum wage rates are higher and accompanied by other government-mandated worker benefits to be paid by employers, unemployment rates are higher, Sowell said. In France, the unemployment rate is nearly double that of the United States, and people stay unemployed much longer.

Williams argues that these workers aren’t so much under paid as they are under productive. The solution? Improve their skills and education. Early work experiences helps young people learn some basic lessons in proper work attitudes, promptness and respect for supervisors.

You can’t ever legislate away poverty. Poverty is relative. Most of the poor in our country have it better than a majority of the rest of the world. But they are struggling by our standards. If Congress says everyone has to make at least $30,000 a year, all that means is the poverty level will be around $30,000.

If you raise an the minimum wage, it may have some short-term benefits, but in the long-term, you’re at best in the same boat you were before, probably worse.

Giving people who are employed more money would give them a small boost in the short-term. However, when people have more money, they tend to spend more. This increases demand, which leads to lower supply and increased prices.

So while you may now be making a couple bucks an hour more, you’re ultimately not able to buy any more than you would have beforehand.

This is, I admit, simplistic. There are other factors that actually make this scenario worse. If what is considered the base pay in the country is arbitrarily raised, what I make is now worth less. In an ideal world, the best you could hope for is for all wages to float up to compensate for the increase of the bottom level.

In reality, most companies aren’t going to be able to afford to give everyone a raise. They probably won’t even be able to maintain their current employment levels, much less hire new workers. Those who aren’t let go because the cost of employment has gone up will have to wind up doing more on the same salary, which is no longer worth what it was before.

Jeff Parish is managing editor. He can be reached at jparish@heraldbanner.com or 903-455-4220 ext. 323.

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