In the United States, large hikes in the minimum wage put some people out of work in certain industries with small profit margins. They cause some workers to get pay increases, while at the same time preventing the creation of a lot of jobs — as the Congressional Budget Office found in one recent study, up to a million jobs would vanish in the case of a national hike to $10 per hour.
But in the grand scheme of things, it would be mostly harmless and unnoticed in many industries. It would show up chiefly in the greater difficulty that younger unskilled workers would have in finding jobs.
But what happens when you raise the minimum wage in the middle of an economic collapse and 720 percent annual inflation? Venezuelan President Nicolas Maduro wants to find out. He is taking this crowd-pleasing proposal from American activists and hiking his nation’s minimum wage by 60 percent. This appears to be an attempt to mollify a restive population that’s pretty much had it with him and his government.
One problem Maduro faces is that probably no wage is sufficient to live on comfortably in Venezuela right now for most people. Thanks to years of socialist mismanagement — specifically a combination of price controls and the weakening of industries through nationalization — the basic staples of everyday life are not available for Venezuelans to purchase at any price. The severity of the situation is such that the level of the minimum wage probably doesn’t matter. It will still be far too little to survive, thanks to the 720 percent annual inflation that Maduro’s regime has inflicted on his once-wealthy country.
At the same time, the price-controlling nature of the minimum wage illustrates the broader problem that Venezuela has. Government is trying to set the prices at which everything, including work, is bought and sold. But government cannot decide what things are actually worth to people — the real force that sets prices. And all efforts to cheat the market, even when they are well-intentioned and not cynical, only frustrate rational decision-making and end up making everyone poorer.
When you decree that bread must be sold at an artificially low price, even going so far as to arrest bakers who stop making it because they cannot afford to keep producing it at those prices, you quickly run out of bread. By the time that happens, the distorting effects of a minimum wage law have already become the least of your problems. But still, this cure is basically just another version of the disease.
