The Alabama Legislature recently blocked the city of Birmingham’s attempt to hike the minimum wage to $10.10. Critics of the decision saw the vote as an unforgivable act of intrusion by the state government on local politics. But if anybody was guilty of government overreach, it was the city council members who advocated the wage floor.
As much as we might all enjoy higher pay or lower prices, these goals can’t be achieved by government decree. When lawmakers tamper with market forces, the results almost always prove disastrous.
And yet, officials at all levels of government continue to push for price controls – whether in the form of minimum wage increases, rent control policies, or efforts to dictate the price of consumer products like prescription drugs. If these politicians are truly interested in the prosperity of citizens – particularly working-class citizens – they should reject such hubristic government interventions.
In the case of the Birmingham minimum-wage hike, officials like City Council President Johnathan Austin framed the reform as a way to improve “the plight of the working class.” But helping low-income workers earn more isn’t as simple as legislating a higher wage.
In fact, the most immediate effect of a mandatory pay increase is that low-skill labor becomes more expensive for employers. Had Austin and his allies gotten their wage hike, it wouldn’t have taken long for some of the city’s businesses to move to surrounding areas where labor is cheaper. Many of Birmingham’s low-income workers would have seen their jobs evaporate, sending their wages down to zero.
A recent analysis by the nonpartisan Congressional Budget Office confirms as much. The study found that raising the federal minimum wage to $10.10 would destroy some 500,000 jobs across the country. Researchers at Trinity University and Miami University, meanwhile, found that a $12 minimum wage would eliminate around 770,000 jobs, including more than 12,600 here in Alabama.
Wages aren’t set arbitrarily, but rather emerge from myriad individual choices and market interactions. The amount a business pays a worker depends on the value of the work performed, as well as countless other factors that differ from case to case.
When lawmakers replace the determinations of the market with their own under-informed opinions, the results are rarely good.
The rent-control laws governing New York City are another example of destructive government interventionism. The policy – a remnant from the Nixon era – continues to distort the city’s real estate market by creating a disincentive to invest in new housing. This has led to a growing shortage of rental units.
Like wage controls, rent controls are intended to help individuals of limited financial means. Unfortunately, when policies like this backfire, it’s precisely the less well-off who suffer the most.
Policymakers now want to replicate this failed model for prescription drug prices. Many leaders – including the president, Hillary Clinton, Bernie Sanders and even Donald Trump – want the federal government to negotiate prices directly with pharmaceutical firms for medicines covered under Medicare’s Part D drug benefit.
Although Part D is an entitlement program, it does preserve some resemblance to a competitive market by letting private insurers negotiate with pharmaceutical firms for discounts on drugs. Both sides ultimately arrive at a price that benefits both of them – otherwise, they wouldn’t make the deal.
Federal negotiations would upend this competition-based system, effectively empowering the government to set its own prices.
Government price controls would discourage drug firms from pursuing new research. Why would any of Alabama’s 660 biotech companies invest the billions of dollars required to create a single new drug if there is no guarantee that they will be able to recoup that money if the government decides to set artificially low prices?
Patients will lose access to new, life-saving medicines that are never developed.
By now, our political leaders should have learned that wages and prices can’t be determined by legislative decree. Every time they deny this fact, working people around the country are the ones who pay for it.
Dale Jackson is host of Alabama Mornings, which airs from 5AM-9AM on WVNN in Huntsville and on WAPI in Birmingham.
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