President Trump’s selection of Andy Puzder, the CEO of the parent company that owns Hardee’s and Carl’s Jr., to lead the Labor Department has incensed minimum wage activists. Pundits are jumping on Puzder as an excuse to criticize companies that provide low-wage jobs.
As Justin Miller writes in the American Prospect, Puzder is the latest in a long line of “employers who get rich by paying their workers a pittance and counting on taxpayers to foot the bill for the necessities those workers can’t afford.” This “parasite economy” is intended to be contrasted with “the real economy,” where workers are paid a living wage of at least $15 an hour.
It doesn’t take an economist to know this is an absurd dichotomy. It conjures up an image of greedy corporations withholding from workers their rightful due, but it does not address the basic economic reality that mandatory increases in the price of low-skill labor cause corresponding decreases in the demand for low-skill labor. To ignore this reality, Miller pivots to another flawed argument: Low-wage employers are a drain on public spending. Miller cites a study by University of California, Berkeley economists that claims the fast food industry costs taxpayers $3.8 billion a year due to welfare spending on fast food employees.
As far as welfare costs go, there is no way the United States welfare system would be better off with more unemployment and businesses shrinking because of an artificial hike in the price of labor. Even if some workers at Wal-Mart, McDonald’s, or similar employers receive payments from various state and federal welfare programs, these payments would have to be higher if it weren’t for the low-skilled, often entry-level jobs provided by these companies. Recent experience has shown that drastic minimum wage increases in many cities and states have corresponded with welfare cost increases.
For evidence that arguments against the minimum wage are mere corporate fearmongering, minimum wage proponents often point to cities that have raised the minimum wage and not seen their economies fall apart. But this tactic misunderstands the argument against raising the minimum wage. As Tim Worstall rightly points out, the argument has never been that a $15 minimum wage will result in a “howling wasteland of huddled masses desperately looking for a job.” The point is that there will be less people with jobs than there otherwise would have been without an increase to the minimum wage.
The nonpartisan Congressional Budget Office concurred with this in its analysis of the effects of raising the federal minimum wage. The CBO concluded that raising the minimum wage to $9.00 an hour would cause a job loss of around 100,000 workers, while raising the minimum wage to $10.10 an hour would cause a job loss of 500,000 workers.
The economic costs of a federal $15 minimum wage were not even addressed by the CBO, but they’re clear. Even Seattle, a city with a median hourly wage that is 27 percent above the U.S. rate, has experienced job loss and increased unemployment since approving increases in its minimum wage. And the city’s minimum wage is set to increase further until it reaches $15.
Imagine the job losses and corresponding increase in public welfare spending that other cities with lower costs of living and earnings will see if they adopt a “living wage.” Considering that one in three American adults under the age of 65 who didn’t work last year live in poverty, killing job opportunities will clearly increase welfare spending. Alternatively, employment drastically lowers welfare spending — the poverty rate for those with a full-time job is only 2.4 percent.
Increasing the minimum wage is about tradeoffs: Some people will see higher earnings, and others will be shut out of the job market.
Increasing the minimum wage is not about lowering public welfare spending — the only way to do that is by getting more people to work.
Andrew Wilford (@PolicyWilford) is an advocate with Young Voices. If you would like to write an op-ed for the Washington Examiner, please read our guidelines on submissions here.
