The Fight for $15: How High Minimum Wages Will Harm the Most Vulnerable
In April of this year, California Governor Jerry Brown signed off on a law that will increase the state’s minimum wage to $15 an hour by 2023. Union leaders and progressives treated this measure, as they have done with similar laws in Seattle and New York, as a triumph for workers’ rights. For many across the nation, such an increase in mandated wages is the morally right thing to do in order to alleviate the poverty that many workers face on a day-to-day basis. Senator Bernie Sanders’s support for a federal $15 dollar minimum wage was a major tenet of his platform during the primary season, and this support at least partially explains the wide appeal he had with young and progressive voters. Such a proposal clearly stems from a desire to improve the quality of life for those who are most disadvantaged, and this author commends those good intentions. However, the reality is that such a drastic increase to the legal wage floor would have devastating consequences nationwide, particularly for those whom this initiative is meant to help.
The majority of the economic literature available, apart from some studies, which claim to prove the opposite, shows that increases in the minimum wage lead to either increases in unemployment or decreases in future job growth. It is important to remember that existing research does not primarily focus on the effects of a $15 dollar minimum wage, but on minimum wages in general. In fact, a Congressional Budget Office study found that if the federal government raised the national minimum wage to $10.10 an hour, a goal of the Obama Administration, 500,000 jobs or more could be lost, particularly jobs in low-skilled industries like fast food services. Of course, those 500,000 jobs constitute a fairly small percentage of the total labor force, but the number shouldn’t be disregarded, as these job losses would apply to a concentrated group of workers. To make matters more serious, those are the estimates for the effects of a $10.10 minimum wage. If the wage floor were raised to $15, as it will be done in California and other states, the effects would surely be more devastating. Those with the lowest skill sets would be the first casualties, as employers would struggle to cope with the increased costs associated with maintaining their businesses and would only hire and keep those workers who prove to be most valuable.
Let us consider for a moment who those least-valuable workers could be. They might be teenagers looking for their first summer job, teenagers who most likely don’t face the burden of maintaining a family. More importantly, however, they could be high school dropouts whose rudimentary education prevents them from finding more lucrative employment. For the former group, losing that opportunity is a bothersome yet relatively minor inconvenience; for the latter such a loss is extremely deleterious. In these scenarios, both a source of income and an opportunity to develop skills are lost. Those who earn the minimum wage now are not likely to be earning it in the near future, primarily because those workers attain the experience necessary to be more valuable to employers in the future. The first low-paying job is crucial, as it serves as the initial rung of the employment ladder. However, if we as a nation impose such restrictive laws as the $15 minimum wage, we prevent those who are most disadvantaged from even getting onto that ladder in the first place, and whatever chances those individuals had of improving their economic condition are suddenly destroyed.
If we work under the assumption that the government has an obligation to ease the plight of the poor, mandating higher wages is not the solution. If we truly care about reducing poverty, then tampering with the labor market in ways that create inefficiency is the wrong path to take. A better alternative would be to implement the Negative Income Tax, or to allow for a substantial increase in the Earned Income Tax Credit. These two policy proposals differ from each other in key ways, but both aim to give direct cash transfers to the most economically disadvantaged in society, most likely as a substitute for wage floors and welfare programs. If our nation works under the assumption that government has an obligation to reduce poverty and diminish the suffering of the poor, a notion which itself can be debated, then it only makes sense to find solutions which create the least amount of loss. Of course, such measures are not without their faults, including the risk that such aid could disincentive work and further increase dependency on government, and this is without taking into account the political obstacles that would have to be surmounted in order for such proposals to see realization. Yet, these programs would provide mechanisms to target poverty without adversely affecting the dynamism and efficiency of our market economy. Whether such solutions would ever be politically feasible is a valid concern, and at the moment it is clear that the momentum has shifted towards support for a continuation of wage mandates. If this is to continue, then the best course would be to avoid giving into the populism behind the $15 minimum wage and let states and municipalities decide which wage floors work best within their own respective economic frameworks.