Wage decree creates no wealth
4:19 PM 3/27/04

At one time or another, just about everyone has been lectured on financial common sense with the tired exhortation, "Money doesn't grow on trees, you know!" Except for a majority of the Madison City Council, that is. <

Led by a mayor who ignores his economic advisors, the council seems determined this week to push the city's minimum wage to an eventual $7.75 an hour, about 50 percent higher than anywhere else in Wisconsin. <

If you're feeling pinched yourself, forcing the boss to fork over more dough probably sounds like a good idea. A minimum wage hike won't wreck the local economy. If the council approves this bad idea, it's not as if we'll all be living in mud huts come this time next year. <

Nevertheless, the effects will be insidious - and those who are supposed to benefit from this change will suffer the greatest consequences. <

Here's the nut: The economy doesn't kowtow to mere city ordinances. And a mandated wage hike creates no wealth: Every penny will come out of someone's pocket. <

Yes, a city-only minimum wage hike will increase earnings for some workers - at the expense of others' jobs. All employers have a finite amount of cash for payroll. If government forces employers to pay workers more than their work is worth, the employers will cut workers' hours or fire some to cover the wages of those who get to keep their jobs. <

In addition, a mandated wage hike won't create any jobs for unemployed people. Contrary to what proponents say, it won't do much to raise household living standards, either. <

In the unlikely event that employers don't cut jobs, they will have to raise prices instead. That makes city employers less able to compete with suburban companies that may be right across the street. And a city-only wage law will encourage urban sprawl by pushing businesses to the less-regulated suburbs, which then reap payroll and tax benefits of the new growth. Meanwhile, Madison consumers will balk at higher prices, driving down sales and employment in the fields that employ minimum-wage workers - a truly vicious cycle. <

Instead of decreeing wage rates, politicians should focus on raising overall family incomes by encouraging growth in businesses that naturally create higher-wage jobs. As we have pointed out before, raising educational attainment in the work force and pursuing high-tech, high-growth employment will make the minimum wage debate moot. <

No matter what laws are passed, businesses will set up where they are most likely to succeed, hire as many workers as they need and pay them what their work is worth. Madison wage-control advocates live in an alternate reality, a weightless universe where living standards rise effortlessly on gentle currents of hot air wafting from the City Council chambers. <

Saddling businesses with new costs likely to reduce employment is counterproductive nonsense. This wage mandate should be rejected so local leaders can focus on genuine efforts to build the economy. <