Revisiting the Minimum Wage

Many want to boost the minimum wage to help with lockdown recovery. Others wonder if a minimum wage hike will merely elevate good intentions over good outcomes. This past week, Congressman Ro Khanna (D-Ca) revealed a justification for the increase when he said, “We don’t want low-wage businesses.” 

Having begun my career with low-paying jobs, I still work with small business owners who depend on them. So, I wanted to understand his declaration. Moreover, because I contributed $1,000 to Congressman Khanna’s campaign, I wanted to understand his willingness to risk the entry-level jobs from which I (and so many others) gained our start in the world of work.

I was discouraged by what I discovered. The Los Angeles Times (March 5, 2018) noted that not only is the Congressman’s $27 million declared net worth held in his wife’s name, but, as a well-heeled Yale law school graduate, he hadn’t paid off a $50,000 student loan, even as he argued that the taxpayer forgive it. Since he’s never met a payroll, I wouldn’t expect him to understand why others point to mandated wage hikes as unlikely to be any more successful in 2021 than when President Nixon implemented wage and price controls 50 years ago. 

Those concerned with market interventions by government note that durable wage growth is fueled by: 1) innovation, 2) profitability and/or 3) increases in productivity. And only when there are more jobs than people seeking them do wages naturally rise. However, if government intervenes to legislate an increase, unintended consequences arise. They include: 1) businesses being forced to cut back on hours, to hire fewer people, and to let people go, 2) people from lower wage markets displacing the less skilled (limiting wage growth, particularly If borders are open, 3) jobs (and industries) migrating overseas, and 4) smaller businesses laying people off, cutting back on their hours, and restricting new hiring. In the long run, it’s the young and the least skilled who are hurt, making them increasingly dependent. 

On the other hand, who isn’t troubled by the thought of families surviving on today’s minimum wage?  When investigative reporter Sharyl Attkisson (CBS News) was assigned to find parents raising kids on a minimum wage, she contacted every higher minimum wage advocacy group. After failing to turn up a single example, she sought a family where just one parent was working for minimum wage. Still failing to find anyone, she looked for a couple without kids surviving on minimum wages. Again, no luck. Even the category of a single parent working for minimum wage came up empty. (See “Slanted,” Sharyl Attkisson, HarperCollins 2020, pps 12-15). 

So, if a minimum wage hike is the solution, what is the problem? And what will be the longer-term consequences of a simple-minded solution? Our recent experience with similar virtue-signaling legislation has  been disappointing. For example, the well-intentioned Community Reinvestment Act resulted in the 2008 financial crisis that hurt the middle class as government bailed out banks. Likewise, the Federal Student Aid legislation contributed to college costs rising 8 times faster than wages. Moreover, Hugo Chavez’s platform of economic “equity” merely resulted in one of the wealthiest nations in the Western Hemisphere being unable to feed its population. 

It seems that local, free-market decision-making beats centralized decision-making every time.  So, instead of a Washington mandated minimum wage that can be easily absorbed in large cities and by large, well-established companies, why not allow every state to set its own minimum wage – and to make it as high as it would like?