Unintended Consequence of Raising the Minimum Wage
This morning I had the great pleasure of being on The Sam Sorbo radio show. One of the things we discussed is the push to increase the minimum wage. A while back I first introduced the concept of BUC (see below) which is proven true again with the unintended consequences of raising the minimum wage.
Politicians, particularly nearing election season, love to trot out the minimum wage debate, claiming that by raising the minimum wage they will help lower skilled and lower paid workers. That just sounds dandy as who wouldn’t want those living at or below the poverty line to have a better life? Let’s all just hug over the brilliance. Err, but wait, the are likely some sort of consequences to forcing a business to pay someone more than they otherwise would.
1) Raising the minimum wage costs businesses more (shock!) which means that many will not be able to afford to employ as many workers.
Oops. In fact a report by the Congressional Budget Office in 2014 estimated that raising the federal minimum wage from its current $7.25 to $10.10 would actually reduce total employment by around 500,000. Keep in mind too that the CBO is notorious for its overly optimistic projections, so my bet is that it would likely be much worse. Obviously any plan that results in half a million people losing their jobs is tough to stomach, but there’s more.
2) When politicians talk about minimum wage earners, the assumption is that those earning minimum wage belong to households in poverty, but the actual data, (yes, there I go again with that pesky information over emotion) reveals this isn’t the case. Many low-wage workers are in fact not members of low-income families; remember those summer jobs in our teens? The CBO estimated there would be about $31 billion in increased earnings from raising the minimum wage from $7.25 to $10.10. Fantastic! But wait, just 19% of that would go to families in poverty! Wait, what!? Yup, the rest would go to families earning more than 3x the poverty threshold! So a bunch of folks lose their jobs and only 19% of the increase goes to those in poverty!?
An increase in the minimum wage would actually result in a transfer of income from people in poverty to people in middle and upper income households.
3) When the employer decides that he/she needs to lay off some workers because the business cannot afford the increase for all its minimum wage workers, those most likely to get laid off are likely to be those with the weakest skills. Reasonable, right? You’d keep those who give you the most bang for your buck. But this means that that those who most need the job to help them develop their skills are the ones most likely to lose theirs! Now they are thrown back into the mailbox economy, where they simply wait for government aid to support them and their families.
As the lovely Sam Sorbo suggested, if we really want to help those are the lowest end of the income spectrum, then we need MORE jobs for the lowest skilled, not fewer. We need more jobs that help these people develop the skills they need to get out of the cycle of poverty and slowly but surely, move into higher paying jobs. How about focusing more on helping this group develop the skills, rather than giving them no options to earn, but rather to be endlessly dependent on government intervention.
Don’t give the man a fish, teach him to fish! Now that, is truly supporting individual liberty.
