Minimum Wage Debate

It is not uncommon for ideologies to adhere to articles of faith long refuted by the evidence. The goal of increasing the minimum wage is one such reflexive Liberal policy position that keeps finding its way into the political debate despite its intellectual vacuousness. It can only be sustained by the deliberate exploitation of the worst in populist sentiments for short-term political gain. Liberals employ rhetoric about mandating a “living wage” knowing that most earning the minimum wage do not remain at the minimum very long, and are many times the second and third workers in a household.

At best, minimum wage laws will have little effect on employment, when the government-mandated minimum wage is lower than the prevailing market minimum wage. However, under such circumstances there is little potential benefit to low-age workers in raising the minimum wage because they are already being paid more than that.

On the other hand, if the government-mandated minimum wage rises above the market wage, people whose work does not justify the minimum wage will inevitably loose their jobs. It is not so much, to use the common metaphor, that the bottom rung of the economic latter is knocked out, but it is at least raised out the reach of some. This negative consequence falls most heavily on the least-skilled workers.

Even when higher minimum wages do not immediately decrease employment, they may have other negative long term consequences. Studies suggest that higher minimum wages can lure teenagers prematurely into the labor market, decreasing their education attainment and long-term wage prospects.

Serious liberals really understand these economic effects, though a few are in perpetual denial. Their motivation for pursuing an increase in the minimum wage is far different. For the Left, disparity of incomes, what they would label as “fairness,” is the key issue. High-income workers should not be making that much than low-income workers. This explains the rhetoric about how much business CEOs make in public arguments about the minimum wage. The amount earned by CEOs is really orthogonal to the question about the exact level of minimum wage that might maximize benefits to low-wage workers. The Left’s argument is about a broader issue of equity, not economic benefits to low-wage workers.

Hence, it is preferable to cause unemployment to rise (presumably while allowing an increase benefits to non-workers) than to allow the lowest wage workers to accept wages lower than some abstract minimum.

At present, Democrats in Congress are trying to pass legislation to increase the minimum wage, while Republicans are trying to tie to a minimum wage increase to decreases in taxes. The latter provision is a “poison pill” for Democrats.

Congressional Republicans will probably yield to demands for a minimum wage increase, realizing that the impact would be marginal. In many places the prevailing market wages are significantly higher than any proposed increases. Moreover, individual states are considering an increase in minimum wages, further reducing the impact of any federal legislation. Voting for the minimum wage may turn out to be an easy vote with little positive or negative import. Politicians have rarely been known to avoid votes of little consequence but for which they can publicly congratulate themselves.

Leave a Reply

You must be logged in to post a comment.