Last week the nonpartisan number crunchers at the Congressional Budget Office reported that significant job losses would result from raising the minimum wage too high too fast.
Implementing the White House call to hike the national minimum wage to $10.10 per hour will eliminate an estimated 500,000 jobs, the CBO announced, and perhaps as many as the one million projected by other analysts. Elevating the federal minimum for hourly paid workers from the current $7.25 to $9 an hour, however, would have a nearly negligible impact on employment.
Demonization of the business community by the president and leftists within his party, however, has persisted unabated. Voguish jabbering about economic disparities is more cynical political ploy than constructive policy prescription. Sloganeering won’t help workers who lose their jobs or create them for those looking for work.
The constant claiming that the “consensus view of economists” incontrovertibly supports the notion that raising the minimum wage is without negative implication at the proposed rate is simply not true. Rather, the purported preponderance consists primarily of studies both dated and evaluating a more modest increase. More than common sense suggests there are demonstrable downsides – otherwise, why not triple the rate, as some at the political extreme have argued.
The affected businesses – predominantly in the fast food, retail and health care industries – employing low-skill workers paid the minimum wage on an hourly basis have long lamented, “instead of 15 employees, I’ll have to make due with only 13.” Others anticipate retaining the same number of employees for maximum staffing flexibility while reducing the number of hours for at least some workers. Few project increasing staffing under the resulting financial pressure.
Suddenly accelerated labor costs also encourage operational transition to workplace automation, including self-service technologies, as emphasized by Bill Gates in warning against too steep an increase. When low-margin businesses are confronted with higher mandated labor costs, survival requires reducing payrolls. McDonald’s, for example, has replaced employees with 7,000 touch-screen ordering and payment kiosks at European locations.
Overlooked is that nearly a third of minimum wage workers are teenagers and, as the CBO notes, “just 19 percent of the increased earnings for low-wage workers would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold.” Studies examining past minimum wage increases indicate that workers living in poor households received less benefit than myth mistakes, due to their already earning hourly wages greater than the adjusted minimum. Instead, the increase mostly benefited second or third earners living in households well above the poverty line.
While some workers retaining their jobs and current hours will earn more pay, the CBO points out that the increase would be partially offset by heightened household expenses resulting from higher consumer prices. In the aggregate, raising the minimum wage by the proposed 39 percent produces a net income benefit for families earning below the poverty level less than their actual percentage change in income, averaging only three percent of current earnings.
Minimum wage adjustments are a highly inefficient method of improving economic conditions for the working poor. Reducing low-income tax rates, increasing the Earned Income Tax Credit and expanding EITC eligibility, eliminating the tax penalty for similarly compensated dual-low-income married couples, implementing a maximum marginal tax rate for low-income families, and other strategic policies would better serve to benefit low-wage earners. All without the negative consequences of less effectively targeted minimum wage increases.
It’s easier to stir up indignation over income inequality, pillory the business community, and play politics with the jobs, incomes, opportunities and lives of low-skill workers.