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The Multifaceted Minimum Wage Mess

The minimum wage is known for killing jobs, but what else does it do?

What should the minimum wage be? The left would aver that it should be between $15 and $22. The right would argue that it is whatever the market would bear. But the real minimum wage is zero, no matter what law is passed or how much Sen. Bernie Sanders (I-VT) screams at the clouds. The higher it goes, that is how much many Americans will eventually earn: nil.

Head in the Sanders

Bernie Sanders

Congress voted to raise the federal minimum wage to $15 per hour by 2025 as HR 582 passed 231-199. The “Raise the Wage Act” garnered the support of three Republicans, but it did not receive votes from six Democrats. It will now move to the GOP-controlled Senate, making it potentially dead on arrival as Majority Leader Mitch McConnell (R-KY) said that he does not plan on taking up the legislation.

It was reported that staffers on the Sanders 2020 presidential campaign are upset that they are not earning $15 an hour, something that the long-time socialist has demanded for years. Rather than lead by example, his campaign compensates employees $13. When Sanders was asked about this, he seemed to be more upset by personnel going to the media, saying it “is really not acceptable. It is really not what labor negotiations are about, and it’s improper.”

Surveys have found that about half of Americans endorse these progressive efforts. But if the media and academics were honest about the impacts of these proposals, including the minimum wage, Medicare for All, and free tuition, then perhaps there would not be so much energy to destroy the US economy. How else can you pass destructive policies without fibbing to the American people?

The left is infamous for this, though, and the legally mandated lower limit on wages is a perfect illustration.

Study Says

In these times, progressive acolytes allude to research that supports their conclusion that it has minimal effect on employment levels. What makes this interesting is that these papers usually insert clever language and misleading findings that are meant to deceive readers. Remember, we are at a place where the Counterfeit News Network and major newspapers have catered to the minority who have adopted the Homer Simpson approach to independent thought: They want their beer cold, their TV loud, and their newscasts to confirm their biases.

A great example of this is a popular 2013 paper, titled “Why Does the Minimum Wage Have No Discernible Effect on Employment?” from the left-leaning Center for Economic Policy Research. Authors conclude:

“Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers.

The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”

Indeed, there are tons of studies like this one that utilizes the same manipulation.

Modest

A common method that researchers take advantage of when trying to note that these hikes do not cause unemployment is inserting the term “modest.”

How does one define modest? The answer to that is subjective, and that is what these authors are counting on. But let’s be generous and concede that it is defined as 4%, double the rate of inflation.

In many jurisdictions nationwide, states and local governments implemented excessive percentage increases. New York City, for example, has increased it by 36% in two years. California hiked the statewide minimum wage by 8.3% in just one year. Colorado imposed an additional 8.1% cost on businesses. Seattle’s went up more than 6%.

Do you think these are modest?

Thanks to this slight adjustment in vocabulary, any website that cited the study ran some incarnation of this headline: “Research Shows Minimum Wage Increases Do Not Cause Job Loss.”

But they shoot themselves in the foot because then they would have to agree that aggressive jumps are destructive to the labor market. Even Gov. Andrew Cuomo (D-NY), the man who has tried every leftist scheme to generate votes, concurred! Heck, Krugman even approved of this assessment in 1998: “So what are the effects of increasing minimum wages? Any Econ 101 student can tell you the answer: The higher wage reduces the quantity of labor demanded, and hence leads to unemployment.”

Real-World Consequences

The second issue is that these kinds of studies essentially say, “What are you talking about? It does not cost jobs! Sure, the minimum wage slashes worker hours, increases consumer prices, and reduces benefits, but it doesn’t kill jobs!”

To someone who doesn’t own a business, a 7% jump does not seem like much. But when profit margins for a sandwich shop or a burger bar are just 1% to 4%, then it all adds up. Of course, there will be leftists who contend that if a company cannot pay a so-called living wage, then they shouldn’t be operating a business in the first place. This is an odd argument because it surmises that it is better to be unemployed at $15 than to be employed at $10.

But we are beginning to see the real-world consequences of this failed policy. Job losses aren’t the only results of a higher earnings floor; there are five other key aspects that hurt workers:

  • Employees are forced to work harder.
  • Employers automate the workforce.
  • Businesses cut employee compensation (wages, benefits, or paid breaks).
  • Companies reduce hours.
  • Enterprises do not hire new workers, thus, limiting job growth.

Let’s dismiss the fact that $15 wages are hurting employment (we’re looking at you New York City’s restaurant industry). Instead, let’s look at overall compensation.

In 2017, the National Bureau of Economic Research (NBER) published a paper that found Seattle’s workers experienced a decline of $1,500 in their annual earnings. Why? Their hours were cut by about 10%. This has been a common situation for many workers in the service sector who have received more per hour but less take-home pay, driven by fewer hours and tips.

The Washington Examiner ran a piece, titled “I’m a restaurant employee in a city with a $15 minimum wage; here’s how it’s hurt me.” Simone Barron, a restaurant employee opposing the $15 minimum wage, stated:

“But there’s no free lunch. Under our minimum wage increase, tipped workers are losing income and moving backward to $15 an hour. Right now, I’d happily trade my gig in Seattle for the golden days in Indianapolis, a so-called ‘low wage’ market where I earned more and was both more financially secure and happier.”

She is not the only one. Servers lobbied Maine lawmakers to overturn a referendum that would raise their hourly pay to $12 by 2024. They feared exactly what Barron experienced. As expected, these men and women faced backlash from the left-leaning media, asserting that they are too stupid to know what’s good for them.

A lot of politicians who pass these laws are not the ones suffering the consequences of these actions. So why would they care if they can appear compassionate to the impecunious?

Politicians, You Are a Sunk Cost

Put simply, the minimum wage hurts the uneducated, the unskilled, immigrants, and youth. The bleeding-heart opportunists tend to forget that these are real people, not just a voting bloc to exploit.

Despite free-market economists dismissing the public policy as “compulsory unemployment” and a government prescription to outlaw employment, officials continue to ignore economic laws in favor of appearing benevolent and charitable – with other people’s money, of course! They can get away with these anti-market initiatives by using the anointed to get their way. It is easy to fudge the numbers, tailor data to fit your confirmation bias, and deceive a partisan public.

But, as William Shakespeare wrote, the “truth will out.”

~

To read more from Andrew Moran, visit his author page. At Liberty Nation, we love to hear from our readers. Comment and join the conversation!

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