Minimum wage hikes! Are you against them? Why do you hate poor people so much?
If there’s one throughline to the minimum wage debate, it’s that it’s essentially free money for the impoverished and the young.
On the other hand is what Greta Thunberg might call “fairy tales of eternal economic growth” — the idea that the minimum wage actually matters when it comes to job creation and the financial bottom line.
This is where Paul Krugman is usually trotted out, fresh from a beard trim, to deliver the requisite “how dare you!”
What gets tossed away in this script about the minimum wage is that it’s generally applied to those with minimum skills.
That’s not to cast aspersions on anyone; you have to start somewhere, particularly if you’re young or have gotten knocked off-track.
Thus, these jobs help generate a skill set, if not particularly in the line of work you’ll end up in then at least in giving you some sense of how the working world operates.
To get these skills, however, you’ll have to get the job first.
If you’re in certain locales, that may be more difficult than in other places — particularly since the minimum wage can vary by up to $9 depending on where you live.
As Zenefits, which provides human resources software to other companies, points out, the federal minimum wage is $7.25 an hour. Tipped employees and seasonal workers — particularly in agriculture — might potentially earn less, but most employees can expect to see at least that.
There are five states with no minimum wage laws: Alabama, Louisiana, Mississippi, South Carolina and Tennessee.
In these states, the federal minimum wage would apply.
There are an additional 18 states where $7.25 is legally the minimum wage at a state level (not including one state, Nevada, where minimum wage employees can be paid $7.25 only employer health benefits are provided).
The highest state-level minimum wage right now is in Washington, where it’s $13.50.
There are a number of states where a $15 minimum wage is being phased in. In some jurisdictions, however, the minimum wage is even higher than that.
Large employers in Seattle — home to the corporate headquarters of both Amazon and Microsoft, inter alia — companies with over 500 employees must pay each worker at least $16.39 an hour, which is currently the highest minimum wage in the nation.
At least three California locales will be phasing in minimum wages of over $16 an hour, as well.
Twenty-one states have increased their minimum wage in 2020, in addition to 43 cities, counties and other jurisdictions.
So what does this mean for job growth?
According to Statista, the top three states in job growth from 2017 to 2018 had low minimum wages: Nevada, Utah and Idaho all have $7.25 minimum wages, albeit with Nevada requiring health benefits if you’re to pay workers at the federal minimum.
Overall job growth was strong, and wages continue to increase for the lowest-paid workers, a sign that minimum wage hikes are having their desired effect without limiting job opportunities or hurting the economies in those states. You’ve been Krugmanned, conservatives — right?
Not entirely. At the American Enterprise Institute’s website, James Pethokoukis argued last month it’s primarily the strong economy that’s kept wages rising and unemployment low.
He quoted Atlanta Federal Reserve policy adviser John Robertson, who noted that, in the lowest-wage quartile, “[w]e would expect to see a rise in the relative median wage in the states that raised their minimum wage, and indeed we do.”
“Interestingly, though, even in the ‘no increase’ states, the relative median wage has improved, suggesting that the increased tightness of labor markets, or some other factor than hikes in state minimum wages, is playing a role in pushing up the pay for those in lower-wage jobs,” he added.
In Seattle, which has the highest minimum wage in the nation, small businesses have been forced to cut hours and lay off workers.
Even The New York Times, in an October 2018 article otherwise championing the city’s minimum wage hikes, said “the growth rate in new workers in Seattle making less than $15 an hour flattened out and was lagging behind the growth rate in new workers making less than $15 outside Seattle’s county. This suggests that the minimum wage had priced some workers out of the labor market,” according to the authors of a study on how the minimum wage laws had affected job growth in city.
“For folks trying to get a job with no prior experience, it might have been worth hiring and training them when the going rate for them was $10 an hour,” but not at a higher wage, study author Jacob Vigdor said.
It’s not just employment that’s going to be affected by minimum wage hikes, either.
The price of goods and services are also going to increase, although not in the way you might think.
In a 2017 report for the Heritage Foundation, economics research fellow James Sherk cited a survey from University of Leicester economist Sarah Lemos of more than 30 studies from that looked at the effect of minimum wage increases.
“These studies found that minimum-wage increases have relatively small effects on the overall price level. They reported that a 10 percent minimum-wage increase raises overall prices by about 0.2 percent to 0.3 percent,” Sherk wrote. “Most businesses pay more than the current minimum wage, so minimum-wage increases do not affect their costs or prices very much. But Lemos found that studies of industries with higher concentrations of minimum-wage workers generally showed larger price effects.
“One noteworthy study that Lemos surveyed examined the federal minimum wage in the 1970s. The federal minimum wage affects Southern businesses more than Northern firms. Southern states have lower living costs and lower wages than the rest of the U.S.; these differences were even greater in the 1970s than today. The study found the South’s higher effective minimum wage increased service prices. Each 10 percent difference in the effective minimum wage raised Southern service prices by 2.7 percent.”
Perhaps most frightening is the fact we don’t know where this will go once economic growth dims, as it invariably does.
Without an engine powering growth on a national level, irrespective of wage and price levels, you can expect to see the true cost of these minimum wage increase.
As it is right now, the evidence is already pretty damning. And, if the minimum wage gets hiked to $15 at a federal level, things could get even worse.
Last July, the nonpartisan Congressional Budget Office said in a report “that raising the federal minimum wage to $15 an hour, up from the current rate of $7.25 a hour, would likely cause 1.3 million people to lose their jobs,” according to the Washington Examiner.
“This would erase the overall benefits of the higher wage, with family income falling by $9 billion or about 0.1%, adjusted for inflation,” the Examiner reported.
Yet, that’s the minimum wage that Democrats are pushing for nationally. If they have control of Congress and the White House, that’s likely to be among their first moves.
The minimum wage isn’t designed to be a living wage.
What it’s there for is to allow workers to make some money while they work their way up the employment ladder.
There are plenty of states where the first few rungs of that ladder have been forcibly removed by do-gooding politicians who are more than happy to tell low-income Americans they’ve done it for their benefit.
Now, Democrats at the federal level want to do that for everyone.
If you were a business owner and you had your druthers, would you put low-skilled jobs in a locale where there’s a $7.25 minimum wage or a $16 minimum wage?
If that doesn’t seem like a very serious question to you, then ask yourself why so many politicians keep coming up with the wrong answer.
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