Wednesday, May 26, 2010

can you tune an economy or can you tuna fish?

Walter Williams at

"Minimum Wage Cruelty" (4/14/10) was my column about the unemployment effects of Congress' 2007 minimum wage increase on the canning industry in American Samoa, a U.S. territory in the far Pacific Ocean. The 2007 legislation mandated 50 cents annual increases in Samoan minimum wages until it reached the U.S. mainland's hourly minimum of $7.25. In response, Chicken of the Sea International moved its operation from Samoa to a highly automated cannery plant in Lyons, Ga. That resulted in roughly 2,000 jobs lost in Samoa and a gain of 200 jobs in Georgia. Prior to minimum wage increases, Samoan wages were about $3.25 an hour. With the legislated increases, Samoa's minimum wage is $5.25. So the question is: Which is preferable for the Samoan worker -- being employed at $3.25 an hour or being unemployed at $5.25?...

StarKist, the island's remaining cannery, announced that between 600 and 800 people will be laid off over the next six months, reducing the company's Samoan workforce from a high of more than 3,000 in 2008 to less than 1,200 workers. StarKist CEO Don Binotto said it's difficult to compete when Samoan workers' wages are nearly 10 times those of its competitors in Thailand and other countries.

Labor unions are the major supporters of increases in the minimum wage. Even though the overwhelming majority of their members earn multiples of the minimum wage, they spend millions upon millions lobbying for minimum wage increases. They do it because higher minimum wages protect their members from competition with low-skill, low-wage workers....

Poor people are not poor because of low wages. For the most part, they're poor because of low productivity, and wages are connected to productivity. Congress can easily mandate higher wages, but they cannot mandate higher worker productivity or that employers hire a particular worker in the first place....It's breathtakingly stupid to think of minimum wages as an anti-poverty tool. If it were, poverty in places such as Haiti, Ethiopia and Bangladesh could be instantly eliminated simply by proposing that these country's legislators mandate a higher minimum wage....


At May 26, 2010 at 4:40 PM , Blogger William Lang said...

What happens when unskilled labor is uncompetitive with automation no matter how low an hourly rate they are paid? Will the Devil find work for idle hands?

At May 26, 2010 at 5:50 PM , Blogger Eric Schansberg said...

This comment has been removed by the author.

At May 26, 2010 at 5:55 PM , Blogger Eric Schansberg said...

Well, we actually have those situations with some who are significantly disabled. But I'm assuming that you're referring to a future time when non-disabled but relatively unskilled people are in that position.

For those occasions, I'd recommend what I recommend now: private charities and voluntary wage subsidies by firms (a la Boaz with Ruth) as possible. To the extent this is insufficient-- or given that society is going to use redistribution to help others-- then I'd recommend a wage subsidy or an EITC financed by taxpayers.

I'd also recommend that unskilled workers-- particularly heads of household-- be exempt from state income and onerous federal payroll taxes.

The minimum wage is a bad idea since it is poorly-targeted (beyond heads of household) and, at some point, makes workers unemployable.


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