It’s a cliche of politics that the name of a proposed bill or initiative depends largely on its name. (More on this later.)
It’s also a cliche now that free market advocates expecting Republicans to control the growth of government shows the triumph of hope over experience, but these days the Bush Administration doesn’t seem to even pretend to fight. On Wednesday, the President announced that he would support a hike in the federal minimum wage, from $5.15 to $7.25 an hour, in exchange for the Democratic Congress providing “targeted tax and regulatory relief” for small businesses.
The minimum wage hike is popular and enjoying political momentum, so President Bush is trying to make the best of a bad situation. But it’s very bad strategy to announce what you’re willing to go along with before you’ve even started negotiating. Further, the President could actually gain politically by opposing the minimum wage might hike. Here’s why.
Politicians love the minimum wage. It is a perfect issue on which to demagogue, since it promises benefits to the public while requiring no tax dollars to be spent, because the costs fall entirely on private businesses. And its costs on workers are hidden — there is no organized political pressure group of people who would have occupied jobs that an increased minimum wage kept from coming into being.
But policies that create good political opportunities for populist grandstanding are often bad policy, and that’s true with the minimum wage. It is economic nonsense, premised on the idea that government can mandate a free lunch: It would be nicer for everyone to make more money, so there ought to be a law!
WHAT COULD THE PRESIDENT GAIN politically by outright opposing the minimum wage hike? First, he would appear bold and principled, willing to spend political capital to oppose bad policy. Second, he could use this fight as an educational opportunity to tell the American people about the job losses that a higher minimum wage would create — a move that would help Bush regain considerable support among his party’s conservative base. And there are very good reasons to oppose the minimum wage hike.
As the Economist noted recently, the minimum wage is a “blunt instrument” that “won’t help many poor people,” since only about 5.5% of the U.S. workforce would gain directly from a rise in the minimum wage — and 30% of those are teenagers, many from middle-class families.
Yet the minimum wage is not only not helpful, it is downright harmful to the most vulnerable workers: those possessing few or no skills. “Minimum wage laws restrict the employment of low-skill workers when the wage rate exceeds the worker’s marginal productivity,” notes George Mason University economist Thomas Rustici. “By doing so, the law prevents workers with the least skills from acquiring the marketable skills necessary for increasing their future productivity, that is, it keeps them from receiving on-the-job training.”
In other words, a higher minimum wage makes it more difficult for workers to enter the job market for the first time. And this can have long-lasting negative consequences.
LIBERAL DEMOCRATS AND THEIR ORGANIZED LABOR ALLIES have done a great job selling the minimum wage policy snake oil. Yet President Bush can create an opportunity for himself by opposing it. He can oppose the hike and communicate directly to the American people the negative effects of the minimum wage.
He can tell the real-world stories of people like Michael Wiggins, owner of Granny Shaffer’s Family Restaurant, in Joplin, Missouri, who told a reporter from the Columbus Dispatch that a hike in Missouri’s state minimum wage is forcing him to lay off two teenage employees. “They’re good kids. They’re hard workers,” he said. “But I really can’t afford to do that. If I’m going to pay $6.50, I’m going to get someone with more of a skill level.” So much for on-the-job training.
Now, back to the cliche about the fate of proposed legislation depending largely on its name. The President could go on TV and boldly say to everyone watching:
“I need your support to stop the Entry-Level Job Elimination Act.”