PROPOSITION A AND THE POLITICS OF COMPASSION

At their national convention in Chicago, Democrats showcased the new "politics of compassion" in prime time. The message to America is that President Bill Clinton cares while Bob Dole is all but indifferent to the suffering of the less fortunate. If Senator Dole is a cold fish, candidate Clinton exudes empathy. Who among us can refute the president's claim that he feels our pain?

Of course, wanting to do the right thing is not the same as actually doing it. Good intentions, however noble and selfless, do not necessarily translate into good public policy. Indeed, a popular litmus test used to measure political morality is the willingness to spend ever more taxpayer money on a variety of failed government programs.

Proposition A, to raise Missouri's minimum wage to the highest in the nation, is a classic conflict of good intentions and bad policy. The federal minimum wage will go to $5.15 next September, while under Proposition A Missouri's would increase to $6.25 on Jan. 1, to $6.50 in 1998 and to $6.75 in 1999 after which it would then increase indefinitely by up to 15 cents per year.

All of us want to raise the productivity and income of Missouri's citizens, particularly those at the bottom of the wage structure. However, this cannot be achieved by elective mandate anymore than a school can confer knowledge by dispensing diplomas of the Federal Reserve can create wealth by printing money.

The law of supply and demand is indifferent to the good intentions of Proposition A. Evidence suggests that Proposition A will reduce the quantity of low skilled workers employed and encourage companies to substitute capital for labor. Many labor-intensive businesses can be expected to relocate to adjoining states while those remaining will attempt to counter higher labor costs by trimming benefits.

Missouri communities competing for new industries will be required to offer tax subsidies and other incentives to offset higher labor costs which will further erode public financing of schools and services. Educational institutions will have a more difficult time finding paid internships for their students, and businesses will have less incentive to provide on-the-job general skills training. By altering the relative wage structure, Proposition A could also have an impact on companies that already pay above the minimum wage, since workers in difficult and dirty jobs may have an incentive to trade down to the easiest minimum wage jobs. As a consequence of Prop A, there will be more low skilled workers unable to find jobs and more people working off the books without unemployment insurance of Social Security coverage.

As minimum wage employees sharpen their work skills and demonstrate responsibility to employers, they typically move to a higher wage rate. For college students and others learning marketable skills, the minimum wage is a transitory entry wage. Ironically, the greatest benefit of Proposition A will probably accrue to these transitory minimum wage workers. Those hurt the most will be the least skilled since the higher wage rate encourages employers to screen the pool of available workers more carefully. In the wake of Welfare Reform, public policy should promote private sector employment of young unskilled workers; instead, Proposition A does the opposite.

Regardless of good intentions and the elective outcome of Proposition A, the job prospects for unskilled workers in the global economy will continue to diminish. The only viable long term strategy for raising wages among the less skilled is to increase their productivity through education and job training. Rather than a painless solution, public policy "gimmicks" like Proposition A only aggravate the problem.

Mike Devaney is professor of finance in the Donald Harrison College of Business at Southeast Missouri State University.