Before lawmakers left for August recess, the Democrat-controlled
House voted
to raise the federal minimum wage to $15 an hour.
Such a move would backfire in a major way if passed into law. It would hurt lower-skilled individuals the most, including teenagers, immigrants, and those without a high school degree. And women, who hold more low-wage jobs than men, would be hurt the most, accounting for more than 60% of the resulting lay-offs.
The push for new wage mandates comes at a puzzling
time: We are in the midst of a record economic expansion in which workers in
lower-wage jobs are seeing their wages grow faster than many high-wage workers.
This is no mere blip on the screen. It’s an ongoing
trend, as the July
jobs report shows.
Average wage growth has been above 3% for the last 11
straight months. Meanwhile, the lowest 10th percentile of wage earners ( people
making about $12 an hour) have benefited from more than twice that gain in
wages—a 6.6% wage increase over just the last year. That’s equivalent to a
roughly $1,500 raise for someone earning less than $25,000 a year.
Some are now claiming that minimum wage increases at
the state level are responsible. One short
study, which was repeated in the pages of the Washington
Post,
shows that states with minimum wage hikes since 2013 have seen faster wage growth
for low-wage workers.
Not so fast. There are some serious problems with this
study.
For one, many states that increased their minimum wage
also instituted pro-growth reforms during the same time. New York, for example,
improved its business
climate in 2014 by cutting its corporate tax to its
lowest rate since the 1960s. Missouri,
Arizona,
Washington,
D.C.,
Minnesota,
and Maine are
all among the states that cut taxes during this time period while also raising
their minimum wage.
There is now ample
evidence that pro-growth policies, like business tax cuts, fuel
wage growth and new hiring. Research on the minimum wage tells the opposite
story: one of job loss and wage stagnation.
The economic fact is that
when the government forces businesses to pay an employee a mandated hourly wage,
businesses are left with few options: Cut hours, lay off workers, or reduce
benefits—or some combination of these.
Most often, businesses are forced to cut jobs, which is why the Congressional Budget Office found that raising the minimum wage to $15 an hour could lead to over 3.7 million workers losing their jobs.
A 2011 study
from The Heritage Foundation painted an even bleaker picture, finding that this
policy would force 7 million Americans out of work.
Economists have
documented the significant negative impact of Seattle’s decision to raise the minimum wage to
$13 an hour. That decision resulted in a drop in employment across the city.
Workers who retained their jobs ended up working fewer hours, resulting in a net
income loss.
A similar trend
resulted from Illinois’ 2002 minimum wage hike.
If history is any guide, minimum wage increases lead to slower rather than faster wage growth.
A 2015 study found that workers in states with small increases in the minimum wage from 2005-2008 ended up with lower wages than they would have had if the state never increased its minimum wage. The minimum wage hike achieved the exact opposite of its goal.
This happens, in part, because minimum wages shrink
the number of jobs available, meaning there are equally qualified workers competing
for fewer jobs. Workers who are lucky enough to retain their job see slower
wage growth than they would have otherwise because the job market is full of
people who can easily replace them.
Minimum wages also have been
shown to incentivize
low-income youth to drop out of school, which lowers their future earnings. And,
they cut off employment opportunities entirely for workers who cannot yet
produce the minimum wage.
At $15 per hour, workers
must be able to produce upward of $35,000 per year. That’s a high bar for
anyone just starting out and especially high for teenagers trying to get their
first job, perhaps to save for college.
A study on the long-run
effects of minimum wages found that the longer individuals were exposed to
higher minimum wages at young ages, the less they worked and earned by their
late 20s. The study also noted that “the adverse longer-run effects are
stronger for blacks.”
It may be true that some minimum wage hikes raise wages
for a few lucky workers, but it comes at the expense of layoffs and shorter
hours for others.
Workers have much more to
gain from sustainable wage increases, and so do employers and customers, since
both groups want better performance from workers.
Our economy is currently booming, and a key feature of
that is the strong job market. There are now over a million
more jobs available than people looking for work. Employers are
offering wage
increases, bonuses,
new training opportunities, and better
benefits to retain and upskill their best employees.
Employers are competing for labor. That puts workers
in the driver’s seat, allowing them to demand higher wages and better benefits.
Moreover, productivity is a major leverage point for
workers. When workers are more
productive, they bring more value to the company and can therefore demand higher
wages.
The current economic environment has benefited from two
things: the 2017 tax cuts and ongoing deregulation. These policies are making
American workers more productive.
The 2017 tax cuts significantly lowered the cost of new
investment by cutting the corporate tax rate and allowing companies to write
off the full cost of many new investments from their taxes. Now, companies have
a greater incentive to re-invest their profits into the tools and research
workers need to be more productive employees.
And, as workers become more valuable through increased
productivity, they are empowered to demand higher wages.
But these tax cuts need to be made permanent to ensure
workers continue toexperience benefits they currently enjoy.
The United States’ record-long economic expansion has
helped lower-income workers the most, and the whole gamut of pro-growth
policies have helped prolong the current expansion. These gains are impressive
despite the economic uncertainty exacted by President Donald Trump’s tariff
policy and our ever-expanding federal debt, which must
be addressed.
Congress should not tempt the resilience of the
American economy by mandating a higher federal minimum wage. Lower-wage workers
are feeling a boon like no other in recent memory. The last thing we should do
is bring it to a premature end.
Source material can be found at this site.
