President Obama brought the minimum wage debate back into the
news in a big way in his State of the Union address, when he
proposed raising it from $7.25 to $9.00 an hour. The president’s
proposal is bound to face the usual conservative opposition, but
his progressive allies should also think twice about trying to
raise the minimum wage.
The goal of the minimum wage is to make the poor better off. And
raising the minimum wage to $9.00 would certainly make some workers
better off—which is precisely why minimum wage hikes are popular.
It is a rare poll that finds less than a two-thirds majority in
favor of minimum wage increases. The trouble is that millions of
people can be wrong, and often are. This is one of those cases.
The raises that some workers would get come with a tradeoff:
Other workers would make less. Some workers would have their hours
cut, at least partially canceling out their hourly raise. Some
workers will be shown the door, cutting their hourly pay to
literally nothing. Other workers will never be hired in the first
place.
This tradeoff causes a regressive income
redistribution—precisely opposite its intended effect. Instead of
taking from the rich to give to the poor, minimum wage laws take
money away from the absolutely poor who lose their jobs, and give
it to the somewhat less poor who still have theirs, plus a raise.
This is not the way to lift a society out of poverty.
In fact, the population groups that minimum wage hikes hurt the
most are precisely the ones that progressives most want to help:
the young, the elderly, and the working poor.
Young people tend not to earn a lot because they haven’t had
time to gain experience and skills. They’re not productive enough
at this stage in their lives to make it worthwhile for an employer
to pay them high wages. The higher the minimum wage goes, the more
young people are priced out of after-school or summer jobs. When
they finish school, they enter the workforce with less experience —
if any. High minimum wages remove the lowest rungs from the
economic ladder — and for some people, the lowest remaining rung is
too high to reach.
Experience is not a problem for the elderly. But for some of
them, an increased minimum wage would be. For some people, Social
Security and retirement savings aren’t enough to get by on. Taking
on a part-time job in retail or food service can be more than just
something to do. It’s a way to help pay the bills. As age and
ailments take their toll on productivity, older workers might not
be able to command wages as high as in their mid-career days. A
minimum wage hike could very well hurt such people instead of help
them.
For the working poor, the effects, as noted, make up more of a
mixed bag. But progressives want to help all of the
working poor, not just some of them, and a higher minimum wage
doesn’t meet that standard. They should look to other policies that
don’t distort labor markets and raise unemployment, such as a more
generous Earned Income Tax Credit.
Then there is the matter that high minimum wages help big
businesses at the expense of smaller competitors. When states are
considering hiking their minimum wages, big companies like Walmart
routinely lobby in favor of the increases. They know that while
they can afford the extra payroll, the mom-and-pop store down the
road might not be able to. Advantage: Walmart.
Just because a progressive proposes a policy doesn’t mean that
the policy is, in fact, progressive. A high minimum wage causes
regressive income redistribution. It keeps young and elderly people
out of gainful employment. It helps only some of the working poor,
and it actually hurts others. It favors big businesses over small
businesses. These are all reasons why progressives should
reconsider their support of what is fundamentally a regressive
policy.
