With the Democrats poised to take Congress, it’s time to look at one of the few issues they’ve been clear about: the minimum wage. The narrative? If you don’t want to monkey with economic fundamentals — i.e. labor supply-and-demand — you’re a heartless enemy of the “living wage.” But is raising the minimum wage really a good idea? There are five good reasons for a ‘no’ to this question:
Incentives against college
Did you know that more than a quarter of minimum wage earners are 19-and-under? Half are 24-and-under. That means half the folks an increased minimum wage would rescue from poverty are young people making crucial decisions about college and skills training. According to corporate-law scholar Stephen Bainbridge: “[R]esearch in behavioral economics suggests that young people tend … to be systematically biased in favor of current consumption. … As a result, the prospect of an immediate income will be given too much weight in their calculus and the prospect of higher lifetime earnings in the future too little weight and, when deciding between work and a present paycheck versus staying in school and deferral of income, they will tend to err towards the former.”
Could minimum wage increases further skew young people’s decisions about college? Such perverse incentives are yet another way government creates subsistence poverty, giving young people 160 more reasons a month to forego education.
Helps corporations, hurts small business
The same folks who would raise the minimum wage complain big box stores put mom-n-pops out of business. And yet such increases would only contribute to this phenomenon, since bigger companies can normally afford the increases, while smaller businesses may find the wages too burdensome. For smaller business, three things can happen: a) owners hire fewer employees and work a smaller staff much harder (unemployment goes up); b) marginal companies are forced out of business (helping the big guys); or c) profits evaporate and businesses fail to grow (stagnation).
Creates unemployment
So if the byproduct of a minimum wage increase is an unemployment increase, what have we gained? A person once productive in the economy now consumes more public resources. (We would hope entitlements are not worth more to the earner than what he would’ve expected in wages, otherwise bureaucrats will have created a disincentive for people to work at all.) Welfare is not just costly to society, but low-wage earners already have their incomes supported by measures like the EITC (Earned Income Tax Credit), a poverty-fighting tool that has fewer deleterious effects on growth engines, i.e. businesses. Creating unemployment is the last thing we should do to help the poor.
Blunt anti-poverty tool
Speaking of fighting poverty, economists Card and Krueger argue the minimum wage is a “blunt instrument for reducing overall poverty” because: “[M]any minimum-wage earners are not in poverty and because many of those in poverty are not connected to the labor market. We calculate that the 90-cent increase in the minimum wage … transferred roughly $5.5 billion to low-wage workers … an amount that is smaller than most other federal antipoverty programs, and that can have only limited effects on the overall income distribution.”
Such statistics suggest minimum wage advocates areclaiming this moral high ground on behalf of a tiny population. Indeed, according to Harvard economist Greg Mankiw, it’s worth pointing out that “about three-fifths of all workers paid at or below the Federal minimum wage were employed in [the hospitality] industry.” Of course, “tips and commissions supplement the hourly wages received.” So just how many crocodile tears are being shed for a bartender making Saturday night’s $400, or a server pocketing $100 per lunch shift?
Just plain wrong
When it comes right down to it, two parties accepting the terms of payment for services is an agreement freely reached. For the government to invalidate such agreements below a certain labor price-point is just wrong. It negates decisions of free people on the basis of discredited Marxist theories of “exploitation.” But in America — where highschoolers work afternoon jobs, seniors stay active, professionals earn extra cash, and even low-skilled immigrants look for opportunities to come and earn an honest buck — the case for exploitation becomes increasingly suspicious. (Of course, we haven’t even gotten started on upward mobility — the idea that to achieve greater rewards, you can’t start in the middle.)
Looks like the min-wage fetish is a vote-getting measure by Democrats. The M.O.? Appeals to blue-state constituents who feel either guilty about their incomes or sanctimonious about their ideas of class warfare. If what we want is to help poor people, there are better ways to do it. But raising the minimum wage was never about that, was it?
Max Borders is a writer living in Arlington.
