Speculation of the consequences of raising the minimum wage has experts worried as a $15 change puts cities and states in unfamiliar territory.
“It’s a grand experiment with potentially profound consequences — some good, some bad — that could extend far beyond the borders of the nation’s two largest states, with ramifications for the health and direction of the U.S. economy and society,” Don Lee wrote for The Los Angeles Times.
Previous changes in the minimum wage had been smaller and implemented over years. That’s muddied the economic effects of the wage, as economists struggle to reach a consensus. Economic noise can influence prices and employment more than a small shift in the minimum wage.
Economic theory suggests price floors drive up costs because they prevent the market rate, in this case for wages, but dramatic rises haven’t been seen in reality as often. That will soon change. Early data, however, isn’t promising for employment rates.
As has been seen in Chicago, bad economic policies impact minority youth hardest. Higher minimum wage keeps young minorities, already at a disadvantage due to lower-quality schools and lower family incomes, from gaining work experience and developing their skills.
Those disenfranchised workers, if they can’t get hired legally, will go into the “informal” market. People need to work, and if they can avoid a law that otherwise stops them, arrangements are made.
“A rise in informal work translates into more tax avoidance and generally means fewer worker benefits and protections, like unemployment insurance,” Lee noted.
Those higher state minimum wages are also driving a divide within the United States. Federalism can act as a 50-state experiment for better rules and norms, but laws have become more divided for “red” states and “blue” states. Increasingly, states have become sorted based on different visions: “One driven by people in large, dense metropolitan areas with a strong information economy, and the other by folks in rural regions more dependent on resources and real estate,” Lee wrote.
If the trend continues, it won’t be a rare Republican in California and a rare Democrat in Texas. It could be a rare Democrat in North Carolina and a rare Republican in Ohio as swing or mixed states sort themselves by vision.
The minimum wage as one issue doesn’t drive such sorting, but the culmination of a state going Republican or Democrat on many issues could leave the states to govern based on ideology, not economic reality. Like the minimum wage, that’s unfamiliar territory with unintended consequences.
