For years, I've been frustrated by the debate over the minimum wage. Like many economic arguments, lots of ideas are mixed together and argued without very clear analysis. Seattle will offer us an opportunity to see what really happens when we establish minimum wages at levels comparable to some other developed countries.

I happen to be a libertarian, and I note that there are often philosophical and economic arguments to be made for policy decisions. I'd like to see policies that are both just and economically efficient. So, for example, an argument (clearly specious) that women staying out of the workplace would produce overall economic gains doesn't matter to me. I don't care if it would or it wouldn't be more economically efficient for women (or minorities or red-heads) to be restricted from certain jobs. It's wrong to have laws restricting the freedom of women or minorities or red-heads and that trumps economic arguments.

In Seattle, they have decided that restrictions on their citizens fundamental freedoms, will on balance be worth instituting, but the freedom to work, entering into an agreement to sell one's labor, is an important freedom that is being abrogated. What if Seattle decided that it wanted to encourage more high tech workers to move to Seattle, because it would increase the tax base, and they instituted a minimum wage for programmers, say $160 per hour. What would happen? Would you like being told that you were not allowed to program in Seattle unless you could find a job that paid $320,000 per year? It would ruin things. Like $160 per hour programmers, many $16 per hour low-skilled teenage kids will be priced right out of the job market.

I got my start working in my first full-time job working for under $3 per hour. I lived at home with my parents, and my income made only a modest dent on the family's overall income, but it gave me a start. I learned to get up every morning, get to work, and do my job. Low wage jobs are a way to get into the job market, even if they don't immediately provide wealth and comfort.

Ignoring the restrictions on our freedom of contract, some argue that this development is a good thing nevertheless, that the $16 per hour will help those living in poverty. Well, if $16 per hour is a good thing why wouldn't $25 per hour be even better? Clearly there is a level that will have negative impacts. Those supporting $16 per hour seem to recognize that there will be negative impacts, but the argument goes that these negative impacts are not so bad because they affect a group that the minimum wage supporters don't like or don't care about (for example, business owners).

Perhaps supporters of the new minimum wage really do care about everyone and my last paragraph is too harsh. In that case what I see is a kind of first-order effect rationale being given that ignores the indirect, but possibly quite significant, consequences of the new minimum wage policy. Each side in this debate has studies that they can cite, but money doesn't grow on trees. It has to come from somewhere. Businesses will have to cover the costs by doing either (1) lowering the dividends to the owners/shareholders, (2) decreasing the salaries of higher paid employees or employing fewer people, or (3) increasing the costs imposed on the business's consumers. All of these actions have negative consequences. (1), lowering the benefits of owning the business means that over time, there will be less of them in Seattle; (2), lowers employment, often of the people this policy is purported to help; and (3), increases costs to everyone (or lowers the quality of the goods provided).

If my simple breakdown in the previous paragraph is correct, why are politicians in Seattle supporting this new minimum wage? Politicians want to stay in office and they can use the minimum wage to appeal to large groups. One group is those that want to help others but don't understand economics or freedom well enough to understand what this policy means. The other group is comprised of those whose jobs might be threatened by workers willing to do the same job for less than $16 per hour. (This is the reason that unions are big supporters of raising the minimum wage even though their workers have wages far above minimum wage. It protects their high wages from low cost competition.)