On a Fox News panel earlier this week, Charles Krauthammer floated a proposal for a two-tiered minimum wage system in which the rate would be raised for individuals who are the breadwinners of their families and remain the same for others. But this would be an absolutely terrible idea.
By way of background, during the minimum wage segment, Krauthammer correctly noted that raising the minimum wage would result in some job losses because "it's an axiom of economics: If you raise the price of everything, you are going to lower demand."
But then he went on to argue, "What conservatives ought to do is to say if you can't feed a family on this -- and as a result of our lousy recovery, a lot of people are depending on this wage -- then I think for people who are the breadwinners in a family, it ought to be raised. But I think what you want for entry-level jobs -- it's really going to hurt teenagers, it's really going to hurt minorities because they are going to lose the jobs which would help them to get started. I would have a two-tiered system. And I think that probably would be a way, a reasonable answer, that Republicans and conservatives could offer. It's not heartless, but it keeps in mind how this would hurt."
There are two main reasons why this idea would backfire.
To start, launching a two-tiered system would create a lot of logistical problems. It would mean coming up with criteria to determine who counts as a "breadwinner" for the purposes of the law. Then there would have to be a whole new government bureaucracy to police whether or not businesses were paying the correct wages to each tier of employees. And businesses would have to take on more compliance costs to make sure they're paying the proper wages and to verify that applicants claiming to be breadwinners actually are supporting families.
Beyond this, the economic effects would be most detrimental for those Krauthammer's proposal is intended to help. Under Krauthammer's idea, businesses who want to avoid paying the higher minimum wage on breadwinners have an easy solution: Shift toward hiring more teenagers or other nonbreadwinners.
Krauthammer's co-panelist Stephen Hayes interjected by saying, "Why would you want that if it's going to cost the very people it intends to help? It would cost those jobs."
In response, Krauthammer said, "Because I do think if somebody is the only wage earner in the family, I think it would be humane to raise it to a level they can cover their expenses."
But again, at the outset, Krauthammer noted that raising prices lowers demand. The flip side of that axiom is that lowering prices increases demand. And by raising the price of employing breadwinners, the government would in effect be lowering the relative price of employing nonbreadwinners. In this sense, Krauthammer's idea is arguably even worse economic policy than a standard minimum wage hike, as it would create a huge disincentive against hiring individuals who are trying to support families.