Clothing retailer Gap Inc. has won praise from the White House in announcing its decision to raise entry-level wages to $9 an hour this year, and $10 next year. President Obama applauded Gap and argued that Congress should follow suit by passing a bill to increase the federal minimum wage from $7.25 an hour to $10.10 by 2016.
But there’s a big difference between a voluntary increase in a market-determined wage rate and a government-mandated minimum wage.
Gap must report to shareholders and make a profit to stay in business; politicians report to voters and must win elections to stay in office. Polls show that the American public strongly support a higher federal minimum wage — but only if it appears to be costless.
President Obama, in promoting a higher minimum wage, argues that it would “lift wages for more than 16 million workers—all without requiring a single dollar in new taxes or spending.” This is the free lunch that politicians love to promise—and it is an illusion.
When the government arbitrarily pushes up wage rates above the competitive level, two things happen: some jobs are lost; and more workers look for jobs but can’t find them, so unemployment of lower-skilled workers increases. These effects are greater in the long run as employers switch to labor-saving technology.
Read more at http://www.cato.org/blog/gap-pay-raise-follows-rand-not-obama
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