The proposed Bill 136-35 raising the minimum wage from $8.25 to $9.25 in two increments will likely pass, not because it solves the root causes of low wages but because it solves a political problem. The irony is that low wages are only an issue because of problems caused by government.
On this issue, it doesn’t matter what one economist – Joseph Bradley – says on the issue. What matters is what thousands of economists say.
In his classic economics text "Basic Economics" which is now in its fifth edition and translated into six languages, economist Thomas Sowell writes: ”A majority of professional economists surveyed in Britain, Germany, Canada, Switzerland, and the United States agreed that minimum wage laws increase unemployment among low-skilled workers. Economists in France and Austria did not. However, the majority of Canadian economists – 85% – and about 90% of American economists agreed. Dozens of studies of the effects of minimum wages in the United States and the dozens more studies of the effects of wages in various countries in Europe, Latin America, the Caribbean, Indonesia, Canada, Australia, and New Zealand were reviewed in 2006 by two economists at the National Bureau of Economic Research. They concluded that, despite the various approaches and methods used in these studies, this literature as a whole was one 'largely solidifying the conventional view that minimum wages reduce employment among low-skilled workers.'”
So there’s no doubt that minimum wage laws destroy jobs. The ultimate irony is that they destroy jobs among low-skilled workers desperate to make a start and grow their human capital to increase their value in the job marketplace.
How has the government caused the problem of low wages?
Nationally, the primary cause is the decades-long inflation of the money supply. As more money is printed, the value is lost from each circulating dollar. It’s why the dollar is now worth a nickel of its 1914 value. Trillions of dollars of buying power have been silently taxed away.
The second cause nationally is oppressive taxation. The original income tax in 1914 was only 1% of income and temporary. Today, local, state and federal taxes can consume over half of a family’s income.
Locally, the main cause has been the failure to create policies that cause the economic conditions that draw more job creators to bid up wages for labor. When there’s a glut of labor and low demand the natural result is low wages.
An example of what’s possible in terms of per capita prosperity when a strong free-market foundation is laid can be seen in the small former British colony of Hong Kong. Despite having a small land area, much of which is mountainous or hilly, and no natural resources, Hong Kong is extremely prosperous.
In his book "Excuse Me, Professor" Lawrence W. Reed describes Hong Kong’s system as having an uncomplicated tax system with low rates on both individuals and business and an overall tax burden that’s a mere 14% of GDP which is half of the U.S. rate. In Hong Kong, there are no taxes on capital gains or interest income or even on earnings from outside of Hong Kong. There is no sales tax or VAT either. There is a very light regulatory touch tax-wise in Hong Kong. There is no government budget deficit and almost nonexistent public debt. Oh, and don’t forget its average tariff rate of near zero. That’s right – zero!”
What’s to prevent our politicians from reforming government and getting similar results? Thomas Sowell describes the main roadblock: “No one will really understand politics until they understand that politicians are not trying to solve our problems. They are trying to solve their own problems - of which getting elected and re-elected are No. 1 and No. 2. Whatever is number three is far behind.”
Anyone doubting this should look at the decades-old festering problems at Guam Memorial Hospital, the school system and in public safety.
Carl Borja Nelson is a Guam resident who writes commentaries about local issues on his Facebook page