The periodic debate regarding raising the minimum wage has resurfaced once again, only this time the argument is connected to the larger discussion surrounding a sprawling, $1.9 trillion COVID relief bill; for some inexplicable reason. In the bill unveiled by House Democrats last Friday, if passed, the minimum wage would increase incrementally from the current $7.25 per hour to $9.50 per hour this year, and eventually escalate to $15 per hour by 2025. Prominent Democrats across the board have supported the idea, including President Joe Biden.
If we deep-dive the issue in trying to understand its full impact, we can learn a great deal about the pros and cons of increasing the minimum wage; particularly with the cons. But there are two pieces of information that are difficult to come by. How, specifically, did we arrive at the number of $15? And, based on the Democrats’ reluctance to acknowledge the negative impacts of a minimum wage increase, why don’t we just add a zero to the number and increase the minimum wage to $150 per hour?
Sen. Bernie Sanders (I-VT) was the first influential public figure to float the idea of a $15 minimum wage, having proposed the idea all the way back in 2015. Sanders’ plan pointed out his perceived benefits for those who are being paid the minimum wage. Beneficiaries would see an improved standard of living; the burden on taxpayers from food stamps and Medicaid would be reduced; and an increase in available income would spur economic growth. It sounds like a wonderful plan.
Sanders’ pitch also included the obligatory attacks on salaries for corporate CEOs (because, after all, socialism is the ideology envy), as well as the store everyone on the left loves to hate, Wal-Mart. But if we dissect the details of Sanders’ idea, there’s one critical piece of information missing: how did Sanders arrive at $15 per hour? Would a $14 per hour minimum wage be insufficient to reach those goals? Would a $16 per hour minimum wage be too much, for some reason?
The only conclusion we can draw from Sen. Sanders’ brainchild is that the number ‘fifteen’ was chosen because it’s a nice, round number. Choosing the target of a $15 minimum wage just sounds better than asking for a $13.85 minimum wage. It’s simpler and rolls off the tongue more easily, and is more likely to stick in folks’ heads. But such justification is a lousy way to go about deciding public policy.
Therefore, if the objective is to improve people’s lives, which is a noble endeavor regardless of which party you belong to, why not choose another round number? Why not make it higher, say $20 per hour? Or $50? Or $150? Those are nice round numbers as well, are they not?
Just think of how much those workers would improve their standard of living making $150 per hour. If the burden on taxpayers would be lessened with a $15 minimum wage, imagine how much it would decrease if we multiplied it by ten. And if economic growth would jump with a bump to $15, what’s stopping us from making it $150 so we can see an economic boom? The issue, of course, is that there are substantial negative consequences to increasing the minimum wage; though if we only listened to the leftist Democrats we would think there are no downsides.
The far-left Center for American Progress is fully onboard with a minimum wage increase, contending that such an increase will “boost communities and the national economy and also reduce federal spending.” According to Rosemary Boeglin, one of Biden’s spokeswomen, “ raising the minimum wage reduces poverty and has positive economic benefits for workers, their families, their communities, and local businesses.” And President Biden’s Treasury Secretary Nominee Janet Yellen claims that the increase would have a “minimal” impact on job loss.
The question, therefore, remains: why are they only looking to raise the wage to $15? Why not double or triple it? Or increase it by a full order of magnitude? The answer is obvious… because increasing the minimum wage nationally will cause extensive damage to small businesses, to taxpayers, and to the very individuals the effort is intended to help; minimum wage workers.
According to the non-partisan Congressional Budget Office, approximately 900,000 Americans would be lifted out of poverty with the wage hike; which is good news. But 1.4 million jobs would be lost in the process. More people would see their wages totally eliminated than those that would see a wage increase. The National Restaurant Association is urging Congress to sit tight on the minimum wage, explaining the measure would “cut jobs, decrease hours, increase menu prices, and close down [restaurants] altogether in some cases.” Increasing the minimum wage would be devastating to small businesses, particularly restaurants.
Perhaps the best argument against a nationwide increase to the minimum wage is the country’s disparities in costs of living (COL) by state. America is a big country, and what makes sense in Oregon doesn’t always make sense in Tennessee.
On average, the state with the highest COL is Hawaii with a COL rating of 196.3, which is more than double that of Mississippi’s 84.8 rating. It’s more than twice as expensive to live in Hawaii as it is to live in Mississippi, so how does it make sense to apply the same national minimum wage? The answer is: it doesn’t. Government is not the solution to all of our problems, and that statement is especially true when it comes to the federal government. A minimum wage increase applied equally across all fifty states will result in an increase in wages for some, but a total elimination of wages for even more.
Labor is a commodity, and commodities are subject to the law of supply and demand. As the supply of labor (workers available) is decreased, the prices or demand for that labor (wages to be paid) is increased. That equation varies by industry, which means it varies by skill set. For example, making sandwiches at the local delicatessen is a low-skill job. There are plenty of people who can perform it, so the supply of labor is very high and the wages are low. Welding machinery to be used at a local factory is a high-skill job. There are not a lot of people who can perform it, so the supply of labor is very low and the wages are high.
Therefore, if someone working at a small town deli is looking to increase their income, they may want to consider improving their skill set by entering a trade school to learn how to become a welder. And if government is intent on improving people’s lives, perhaps they should consider helping that sandwich-maker gain access to that trade school instead of trying to artificially inflate the demand for his or her sandwich-making skills.
No one aspires to work for the minimum wage, except perhaps for a teenager looking to land their first job. For those who are working such a job because of a limited skill set, the key is for them to improve their skills and thereby make themselves more marketable. The solution to lifting people out of poverty is not for the government to intervene by applying a one-size-fits-all minimum wage across fifty, widely varying states. Help those Americans make themselves more marketable by improving their ability to provide value to prospective employers. And help those employers increase their demand for such laborers by giving them a robust economy in which to conduct business.