It's the August recess for members of Congress. So everyone's life, liberty and property is temporarily safe.

Well, almost everybody. Before they left town, this largely do-nothing Congress did one very bad thing. They hiked the minimum wage from $5.15 an hour to $7.25 an hour as of July, 2009. The 7 million or so workers who are affected by this change potentially face a double whammy: loss of a job, loss of health insurance or both!

Anyone who has taken Economics 101 knows that price floors cause surpluses. In the labor market, we call that unemployment. Moreover, those who get priced out of the market are the least skilled. Except for a few poorly designed studies, most economists come down on the side of common sense. If a worker can produce only $5.15 of goods and services an hour, no employer is going to pay him $7.25.

When I was young, teenagers ushered people to seats in theaters, pumped gas, washed cars, waited tables, and actually helped customers find things in stores. Today, we have floor lights, self-serve pumps, automatic washes, fast food, self-serve stores and a teenage unemployment rate – especially a black teenage unemployment rate – that is many multiples of what it once was. We also have one in every four young black males somehow involved in the criminal justice system.

[By the way, a fascinating area of inquiry for some enterprising soul is the relationship between the Democratic party and the economics profession. Democrats, during the Kennedy administration, brought Keynesian economics (at that time it was mainstream economics) to Washington. And President Kennedy was well aware of the benefits of free trade and the concept behind the Laffer curve. Yet today's Democrats (at least the ones who get on national TV) seem to have no understanding of economics on issues ranging from the minimum wage to Social Security to gasoline prices to international trade. Paul Krugman wraps many of these conundrums into a single persona. Even though he is a well-respected economist, his highly partisan columns in the New York Times - especially on the minimum wage and Social Security - are indistinguishable from the opinions of an economic illiterate.]

Anyway, labor compensation comes in two parts: cash wages and fringe benefits (the most important of which is health insurance). Most minimum wage laws set a floor on cash wages and leave benefits to be determined in the market. Not surprisingly, studies show that among workers who retain their jobs, employers reduce benefits dollar-for-dollar with the increase in the cash wage. Independent of the effects on the worker, this result is socially bad.

No one knows how many minimum wage workers (or more precisely, how many workers within $2.10 of the previous minimum) have health insurance acquired through their employers. At least I don't think anyone knows. But we must be talking about hundreds of thousands. Health insurance for every one of them is at risk.

Why would politicians want to tell people that if they can't produce $7.25 an hour they can't work? Why would politicians want to tell people that if they can produce only $7.25 an hour they have to take all their compensation in cash and none in health insurance?

I don't know the answer to these questions. But on the assumption that Congress was not just throwing a mean-spirited sop to the labor unions and really wants to help low-wage workers, I have three proposals everyone should like – liberals and conservatives, Democrats and Republicans, altruists and curmudgeons – one and all:

1. Allow employers to count health insurance expenses against the minimum wage increase (so up to $4,200 of the mandated increase for a full-time worker could go to health insurance).
2. Allow employers who do not provide health insurance to use the increase to purchase non-taxed, individually owned insurance instead of paying taxable wages.
3. Allow employees to choose between taxable wages and non-taxed, individually owned health insurance.

Also, many states and cities have minimum wage laws – often several dollars higher than the federal law (San Francisco's is $9.14 an hour). The above options should apply to the state and local level as well.

This is my last Health Alert until September, at which time Congress will return and (as reported in a previous Alert) will resume its efforts to deprive little children of their private insurance.

Have a great Labor Day weekend.

For an NCPA Brief Analysis, "Saving Health Insurance From the Minimum Wage," see http://www.ncpa.org/pub/ba/ba565/.