Minimum Wage Laws Hurt People

Federal legislation has been introduced that would mandate a rise in the federal minimum wage to $15 an hour by 2024. I have often wondered — and in writing — if supporters of such mandates understand simple economic concepts or if they have familiarized themselves with scholarly research on the minimum wage.

It is clear from theory and evidence that minimum wage mandates hurt people and, likely on net balance, by more than those helped by it. Yet many wish to believe otherwise. Commanding a higher wage level from Washington, D.C. will not increase the value low-wage employees create and may lead managers to cut jobs that are not worth the extra expense. That means greater unemployment and a loss of opportunity, often for those folks who most need jobs and the experience they provide.

This morning the Competitive Enterprise Institute mailed a letter to members of Congress in opposition to the “Raise the Wage Act,” and I — representing the Mackinac Center — was a signatory to it. The letter makes five key points: 1) A standard minimum across the entire U.S. will harm some areas more than others; 2) Minimum wage laws harm more poor people than they help; 3) They increase unemployment; 4) They deprive young people of work experience; and 5) They harm the overall economy.

Mackinac Center adjunct scholar Mark Perry is quoted in the letter, and he describes a national minimum wage as a “one-size-fits-none-approach” as it will disproportionately impact small, rural communities where the cost of living is low compared to urban centers where the cost of living is high. For example, the mandate will apply equally to Lincoln County, Montana, where the median income is just over $35,000 a year and to Fairfax, Virginia, where the median annual income is over $110,000 — and just down the street from the very politicians trying to impose this mandate. They can afford cost increases associated with price hikes better than poor folks everywhere else.

We wrote about this repeatedly in 2014 when President Obama’s administration was trying to raise the federal minimum wage. The owner of Zingerman’s in Ann Arbor supported a higher minimum wage, but he could afford it. He caters to a well-to-do clientele, which included President Obama. A Rueben sandwich at Zingerman’s today costs at least $16.50, well north of an affordable sandwich price for most Americans.

Proponents often counter that a mandated minimum wage hike helps poor people by forcing their employers to pay them more. But proponents haven’t yet tried to also force employers to continue hiring them. That is, at higher wages employers may not be inclined to add payroll. Nor can they force businesses to remain in business.

The loss of employment opportunities takes away the chance to get work experience. Those first rungs on the economic ladder are vital ones, as CEI points out in its letter.

Consider the plight of teenagers looking to make a little money and get that vital experience. A study that used over three decades of data tracked teenagers who had found employment during their senior high school year and summer. The researchers found that teens who had found work during those early years earned much more than their peers. Even into their 40s and 50s, the wage advantage of those who found work as teens held up at 9.4%.

The CEI letter also points to a literature review of studies that attempt to measure the impact of minimum wage laws. The authors of that review report that 85% of the studies they reviewed found a negative impact on employment. Mackinac Center President Joseph Lehman and I also cite that study in our Wall Street Journal op-ed on the minimum wage.

How negative would the impact be? CEI points to a Congressional Budget Office analysis that pegged median job losses at 1.3 million. And that’s not all. It would also reduce business and total real income in the country too.

Minimum wages sound nice but policy doesn’t happen in a vacuum. Choices made by distant politicians have consequences, unintended and otherwise. A higher minimum wage, the evidence shows, often leads to a wage of $0. As many companies are forced to retrench due to higher costs, employment rolls are trimmed, starting with the least productive workers, who are often also poor or young and trying to get work experience.