Charlottesville. Should Virginia join the 23 states that have already approved minimum-wage increases above the $5.15 federal rate, and the six others likely to do so on November 7? Minimum-wage opponents, part of a shrinking minority, like to suggest that only the market should determine this compensation, and that government-mandated wage rates do little more than reduce job opportunities for the least skilled and least well-paid American workers. The unintended consequences, we are told, far outweigh the benefits connected to the marginal increase in hourly pay. Indeed, economics textbook examples appear to always substantiate this claim, based on the simple contention that in competitive markets where workers are not exploited on the basis of skin color, gender, or national origin and where there are many employers seeking to hire the same workforce, any involuntary pay raise -- such as a new minimum-wage mandate -- would only price these workers out of their jobs.

Textbooks Ignore Many Factors

The real economy, however, includes critical factors that these textbooks almost always ignore or shunt aside unrealistically. Too many employers, for example, remain willing to exploit the historically diminished bargaining power of women, African-Americans, and recent immigrants. Indeed, much racism and sexism continue to be difficult to erase because it rests on this kind of corrupt bargain, by which some protect their wealth or enrich themselves at least partly at the expense of others. Many other employers operate in markets where full employment does not prevail or where there are few other enterprises with which to compete for the hiring of the regional workforce. In these cases, the prevailing wage is often lower than an efficient, market-clearing standard, and a mandated raise therefore can improve economic prospects for all.
Experience also teaches us that the demand for workers is based upon the demand for the goods and services they produce, and not the price at which these workers are hired. When employers actually do compete for workers in a non-discriminatory, full-employment environment, this is why the principal ill effect is price inflation, not diminished job opportunities. Yet even this response need not take place in most of these circumstances, for what appears to be nothing more than an additional cost is typically offset by increased productivity, increasingly stable and profitable markets, lower training costs and lower employee turnover, and diminished social burdens.
Since the federal minimum-wage rate peaked in 1968 at approximately $7.60 (in current dollars), at a time when national unemployment was 3.5 percent and both profits and hiring in the service and retail sectors were rising, there is no mathematical rationale for denying the more productive employees of 2006 the same level of compensation. Despite this, irrational and all-too-customary price increases might be provoked from employers.

Economic Reasons for Raise

Proponents of the new minimum wage might be wise to consider only modest increases. But there is no reason -- economic, mathematical, or moral for Virginians to oppose a modest minimum-wage increase. To do so would be to deny the genuine and widespread economic and social benefits that would come to all Virginians by placing a greater share of general earnings into the hands of those most likely to spend it.
Indeed, such an increase would only spur additional economic activity and create additional job (and profit) opportunities where textbooks and nearsighted economists would forecast substantial job losses. And if the mandated increases cannot be revisited on a regular basis to adjust for obvious and permanent increases in the cost of living, tying increases to a median, non-supervisory wage rate (instead of the Consumer Price Index) would likely be a good way to offset the effects of inflation without triggering new and irrational price increases.
Should Virginia establish a new minimum-wage standard? Yes, by all means, for it is both the morally and economically correct thing to do.