Safety Net, Or Trap Door?

Minimum-wage laws are often thought of as a boon to the least fortunate, and a moral rebuke to Dickensian free-market sorts — but they do not always confer the blessings their sponsors desire. A recent government report about a sharp rise in minimum-wage mandates in Honduras shows us something about unintended consequences.

Apparently many Honduran businesses were already working on such slim margins that they simply could not afford to pay the 60% higher wages, and as a result many people have been laid off. We read:

In January, Honduran President Manuel Zelaya increased the minimum wage 60 percent, raising monthly wages from US$ 181 to $289. As a result, an estimated 15,000 people have been laid off in urban areas. This number is expected to steadily increase as businesses cannot afford the new mandatory wages. Remittances from Hondurans in the U.S. have also decreased throughout 2008.

Some analysts predict increased crime in Honduras due to citizens unable to find legitimate sources of income. Many unemployed Hondurans could look to kidnapping for ransom in order to obtain large sums of money for a small amount of planning and effort. As the disparity between economic classes continues, wealthy Hondurans or foreigners of affluent appearance conducting business in Honduras could continue to be targeted at a higher rate.

You can read the report here. (Hat tip to James Taranto.)

While we are on the subject: most people are unaware that the history of minimum-wage laws in America is rather different from what they might imagine. The Progressive socialists who were the proponents of the earliest U.S. minimum-wage laws supported them not for the benefit of the lowest-functioning stratum of society (people generally and openly regarded at the time as “‘defective” and “inferior”), but essentially to reduce their numbers and discourage breeding. The idea was that without such laws, they could support themselves in a meager way by taking work at wages that nobody else would accept, but if there were instead a hard floor on wages employers would, as long as they had to pay more anyway, simply hire better people. (This was, of course, at a time when left-wing academics and policymakers had very different views on such things as eugenics than they do now.)

Even today, there is no consensus as to the net benefit of these laws (and it is not my purpose to stake out any editorial position here). As economist Thomas Sowell has pointed out, the real minimum wage is always zero.

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