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Minimum Wage Increasing in 20 States and D.C.

Much has been made of the fact that a number of minimum wage increases are to take effect January 1, 2015 – in nine states as a result of “cost-of-living” increases, four states that passed legislation in November, and eight states that passed legislation in the last two years.

Before going any further we must return to the facts about minimum wage workers from the Bureau of Labor Statistics:

  • 3.3 million American workers paid minimum wage or less
  • Minimum wage workers represent 2.4% of the total workforce,  4.3% of the hourly workforce
  • Minimum wage worker tend to be younger:
    • 24.2% are ages 16-19
    • 26.2% ages 20-24
  • Roughly 2/3 or 2.1 million were part-time

Please note that these are the facts – and they are undisputed…  Timothy Taylor’s conclusions are logical, simple, and realistic:

Whatever one’s feelings about the good or bad effects of raising the minimum wage, it seems fair to say that those effects will be disproportionately felt by a relatively small share of the workforce, disproportionately young and part-time, and disproportionately in southern states.

It is time to pause and gather your thoughts and emotions…  What are the important questions that need to be answered?  First:

What problem are we trying to solve with a minimum wage?

The Economic Policy Institute’s David Cooper outlines reasons such as:

  • Minimum wage workers make 25% less in inflation-adjusted terms than they did in the late 1960’s.
  • A full-time, full-year minimum wage employee with one child is still left below the federal poverty line.
  • Business paying the minimum wage are not paying workers enough to survive.
  • “For millions of Americans struggling to make ends meet, policies to boost incomes should always be a top priority.”

Everything Mr. Cooper says above is true in his argument to raise the minimum to $10.10.  Currently we are talking about 3.3 million Americans or roughly 1% of the population.  Increasing the minimum to $10.10 will definitely bring more into the fold as minimum wages earners – up to 16.5 million by CBO estimates.  While I empathize with Mr. Cooper’s emotion-driven plea for a minimum wage increase, this is not the answer.

It seems as though Mr. Cooper’s primary concern is to help those left behind.  But what about the CBO estimates of 500,000 to 1 million workers that will lose their jobs as a result of the increase?

CBO Minimum Wage Labor Impact EstimateThat may be worth the cost to Mr. Cooper but rational readers can decide – Mr. Cooper is going help the 3.3 million current minimum wage earners by firing 500,00 to 1 million of them?  To be fair and perhaps more statistically accurate, the $10.10/hr will affect wages 16.5 million people at the expense of those 500,000 to 1 million.  But doesn’t that still seem obtuse?  Isn’t the current argument that we are alienating the few – 3.3 million or 2.4% of the workforce.  So to solve the problem we are going to alienate 3-6% of the 16.5 million?  I thought that’s what Mr. Cooper was moving away from.

What about those with more than one child – 2, 3, or more?  I know it may sound silly, but Mr. Cooper’s emotion-driven plea is geared completely around earnings and survival – not the skills brought to the employer by the employee.  Therefore, you do not have to go far in his arguments to consider minimum levels of earnings based on number of people in the household.  That is why his analysis is fallible – though I empathize – policy cannot be based on his loose, emotional reasoning.

There are other impacts of a minimum wage increase.  While the negative effect on employment is known, the wage increase operates more like an additional sales-tax.  Kudos to Mark Thoma at Economist’s View for directing me to this research study by Peter Harasztosi, “Who Pays for the Minimum Wage?”:

Contrary to theoretical models that attribute the small employment effects of minimum wage changes to monopsonistic wage setting, we find no evidence that the rise in the minimum wage led to lower profitability among low-wage employers. Instead, we find that the costs of the minimum wage were largely passed through to consumers.

Therefore, when the government passes a minimum wage increase employers will pass along a price increase and the American public picks up the tab.

If we were talking about the facts and truly helping people, many of Mr. Cooper’s arguments would be considered invalid and we would be discussing the development of skills in those unskilled minimum wage workers.  But taking it further, 50% of the unskilled are 24 and younger meaning that their current employment may be their first job or they are currently enrolled in high school or college.  The fact that 2/3 are part-time provides mild, logical evidence to support the hypothesis.  How much is a first job worth?  The minimum?  Maybe – but it shouldn’t be for long as employees’ skills are developed.  Skills are what are important to the economic future of low earners and new-entrants.  Minimum wages without skills would be similar to establish minimum car prices to help struggling car companies.  Regan Taylor phrased it well:

Minimum wage logic: raising the minimum wage to (at least) $10.10/hr will be good for minimum wage workers. It will put more money in their pockets spurring economic growth.

A few years ago, the federal govt bailed out General Motors. Instead of engaging in such a gross display of corporate welfare, why didn’t we just apply the same logic to help the auto giant? If raising the MW from $7.25 to $10.10 (a 39% increase) helps those who sell their labor at that price, why didn’t the govt pass a law that mandated that all auto firms raise the price of every car, van, SUV, and truck they sell by 39% also – or at least raise by 39% the price of their lowest-priced models? Is there a fundamental distinction between the applications of this logic that says it will help one group but harm another? If the mandated increase benefits those who sell labor at that price why wouldn’t it be beneficial to do the same for those who sell automobiles? Or tennis shoes? Or computers? Or any other industry?

Why do so many people believe that the laws of supply and demand apply to everything that is bought and sold EXCEPT labor?!

And for your information, the oft repeated fact that minimum wage earners earn far less than they once did is a statistical manipulation – usually for partisan purposes.  Since inception, the minimum wage would be roughly be only $4.20 in today’s dollars.  Whenever, you see the 1968 figure, it’s usually for partisan reasons.  See the chart below:

Minimum Wage Adjusted for Inflation

More on this later…

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