Analysis

Why Minimum Wage Policies Do More Harm Than Good

   DailyWire.com
WILMINGTON, DE - MARCH 12: Democratic presidential candidate former Vice President Joe Biden delivers remarks about the coronavirus outbreak, at the Hotel Du Pont March 12, 2020 in Wilmington, Delaware. Health officials say 11,000 people have been tested for the Coronavirus (COVID-19) in the U.S.
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The Biden Administration is currently pushing the idea of raising the Federal minimum wage from $7.25 to $15 an hour. While presented under the guise of helping lower income Americans, this aggressive policy proposal is actually an impetuous and injudicious solution that would harm the very people it is intended to aid. As a first step, as of January 22, 2021, the administration will soon be requiring that all Federal contractors pay a $15 minimum wage.

Since the establishment of the Fair Labor Act of 1938, businesses with an amended minimum annual revenue of $500,000 — as well as employers producing goods for commerce — must provide a minimum wage. This broad price floor has been an ongoing issue for many small businesses, but within the past few years, some cities and states have taken measures to augment this wage enforcement.

In June 2014, Seattle was the first city to pass a progressive wage policy championed by the slogan “Fight for 15.” The goal of the ordinance was to help low-income workers by gradually raising the minimum wage every year until finally reaching the $15 mark in January 2021.  

At the time the policy was passed, Seattle was experiencing an economic boom. With the growth of Amazon and real estate in the surrounding counties, Seattle became one of the fastest growing economic cities in America. Housing prices jumped up 25.4% in just two years, and along with waves of newcomers came a slew of new restaurant and entertainment businesses. 

However, the implementation of a $15 minimum wage did not bolster Seattle’s upward economic trend.

According to a recent study of Seattle’s minimum wage policies by the National Bureau of Economic Research, “low-wage workers lost more than $2 in forgone employment opportunities for every $1 gained from higher hourly wages.” Furthermore, the lost income associated with the hour deductions of low-wage employees was greater than the wage increases, which resulted in a net loss of $74 a month for each employee.

In total, low-skilled workers had an estimated reduction of 3 million working hours, with 5,000 job losses.

While results of this study found marginal effects on employment losses, this outcome can be attributed to Seattle’s incremental increases as well as their minimum wage before their 2014 policy, since the city had the highest minimum wage in the nation.

As shown by the data, low-skilled workers are the ones who face the consequences of any reductions. If employers cut back hours or release employees, the higher-skilled workers will retain their positions while the lower-skilled are pushed out.

This economic phenomenon is well described by economist Thomas Sowell, who states, “making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount — and if it is not, that worker is unlikely to be employed.”

Following in Seattle’s footsteps, then California Governor Jerry Brown signed similar legislation in April of 2016 to raise the minimum wage to $15 an hour by January of 2022.

California’s restaurant industry, at the time, was experiencing astounding growth. From 2010 to 2017, employment grew by 27% in full-service restaurant sectors and 35% in limited-service restaurant sectors.

Unfortunately, this growth was stunted by Governor Brown’s order. 

According to a study by UC Riverside School of Business, an estimated 38,000 jobs were lost due to California’s minimum wage increase. Had wages stayed the same, six of California’s highest income areas would have 7% more employees than the current number. 

Moreover, there is concern that during the next recession, California’s restaurant industry will face serious repercussions as the higher minimum wage is likely to create higher unemployment.

Similar to the discoveries of the study on Seattle, the data showed that low-skilled, disabled, and part-time workers were affected most by the policy, with both of these studies indicating that raising the minimum wage has a serious negative effect on low-skilled workers. 

If Biden’s initiative is passed, the Congressional Budget Office projects the country may lose up to 3.7 million jobs and real income would fall by $16 billion for families above the poverty line.  

But the heart of the minimum wage issue is summarized in the conclusion of the UC Riverside study. The researchers state, “The logic here is inescapable. Rather than using a one-size-fits-all approach, the level of the minimum wage should, at the very least, be tied to the level of income in the communities.”

A major issue with the Federal minimum wage is not the assurance of fair wages in cities where the real value of the dollar is lower. The problem is the enforcement of wages that are adjusted for city populaces upon rural areas. 

The real value of a dollar is significantly less in New York City than it is in rural Arkansas, for example. The Tax Foundation estimates the real value of $100 in Arkansas to be $117.23, while in New York, the real value of $100 is $85.91. So why should the government enforce both rural states and remote small businesses to pay the same dollar amount as cosmopolitan states and cities when there are serious discrepancies between the geographical locations?

One may instinctively agree with Biden’s statement that “No one working 40 hours a week should be below the poverty line.” But the reality is that arbitrarily and artificially inflating wages will not help the impoverished. It will only hurt them.

In the wise words of Henry Hazlitt, the great 20th century journalist, “The question is not whether we wish to see everybody as well off as possible. Among men of good will such an aim can be taken for granted. The real question concerns the proper means of achieving it.” 

It is very important to provide propitious opportunities for the destitute so they may prosper. However, raising the minimum wage is not only an inequitable and inefficacious solution to those living in rural areas, but it is also a regressive repression that harms the very people it is intended to help.

Paul Mosimann is a writer with a concentration in economics and political philosophy. His work has appeared in the Daily Signal and Free the People. Follow him on Twitter @MosimannPaul.

The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.

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