Advisors.ie

(original article appeared in the Sun on Sunday)

Last year I got the shrieking hoards going when I mentioned how minimum wage is fairly pointless and calls to raise it are a moronic idea.

This week the Congressional Budget Office in the US did some number crunching. The nice thing about them is they don’t have an agenda of what’s ‘left’ or ‘right’, they are about what’s ‘right or wrong’ and they are tasked with putting numbers on these things.

So there is no talking head bullshit, no anecdotal stories with the usual villains of companies who dare employ people or the other usual nonsense. Instead they put real numbers on real life scenarios and the answer was simple.

Increase minimum wage and you increase unemployment. Repeat after me: ‘if you increase minimum wage you increase unemployment’.

Something already echoed by the National Bureau of Economic Research in a paper they did that looked at all minimum wage research to date.

Granted, this is US data, but it applies everywhere, the sad truth is that we don’t even produce this kind of research to draw our own conclusions from so we have to use other nations work as a proxy.

What is most fascinating is that when you look at who actually benefits from a minimum wage it make the whole debate seem farcical.

The question is about what would happen if they raised the minimum wage from $7.25 an hour to $10.10 an hour.

It states that 16.5 million people would earn more, that’s purely mechanical and captures everybody who earns between $7.25 and $10.09 an hour. It would also make the poorest families $5 billion better off.

First of all, ‘poverty level’ doesn’t factor in lots of transfers to households and doesn’t consider household requirement, then there is the uncomfortable fact of between 500,000 and 1,000,000 job losses because of this move.

It may move 900,000 of the 45,000,000 Americans in poverty out of the ‘poverty threshold’, so this idea is there to fix the lives of 2% of the poor while also making 2% of the currently non-poor into the very poor because they have no work now?

The bigger beneficiaries are those who earn up to three times the poverty threshold (positively middle class) because their households would be better off by $12 billion!

This is the point, there are lots of minimum wage people married to highly paid people and the figures support this. Only 20% of all the money in this increase would ever end up in the hands of the people in poverty.

These are the people the whole idea of a higher minimum wage is targeted at. So should we do this in order to get a maximum success rate of 20%? Why not just raise tax free rates?

And why avoid the distinct possibility that this wage is commensurate with productivity and training and realise that better skills and training are the answer?

The minimum wage in Ireland (for an adult worker) is €8.65 the fourth highest in Europe.

Detractors instantly say ‘but it’s expensive to live here!’, newsflash, nowhere good is cheap, when adjusted for purchasing power to allow for price differences we are still fifth out of all the Eurozone.

Next time you hear this debate, just walk away, uncomfortable facts like the actual numbers will never make their way into the debate in Ireland