Minimum Wage 101

This article (Minimum Wage, Maximum Politics) might have been titled Minimum Wage 101 if it hadn’t been published on the same date as the equally good Regulatory Capture 101.  “A mandated 40% increase in labor costs will put people out of work. But, hey, anything to help get out the vote.”

Key excerpts:

[Raising the minimum wage] sounds nice, and the hike would give a raise to Americans who already have jobs earning the minimum wage, assuming that they’re still employed after the required raise. Unfortunately, this 40% minimum-wage hike would also reduce employment opportunities for those who need them most…

The point is simple: The feds can mandate a higher wage, but some jobs don’t produce enough economic value to bear the increase. If government could transform unskilled entry-level positions into middle-income jobs, the Soviet Union would be today’s dominant world economy. Spain and Greece would be thriving.

But here’s what middle-class business owners, who live in the real world, will do when faced with a 40% increase in labor costs. They will cut jobs and rely more on technology. Such changes are already happening in banks, gas stations, grocery stores, airports and, more recently, restaurants. Almost every restaurant chain in the country from Applebee’s to McDonald’s is testing or already implementing automated ordering with tablets or kiosks.

The only other option is to raise prices. Yet it would be near-impossible to increase prices enough to offset the wage hike, particularly given today’s economic conditions. More important, price increases burden consumers, particularly those with low incomes who are supposed to be helped by a minimum-wage increase

An effective minimum-wage policy would also recognize that there are at least two distinct groups of workers who earn the minimum wage. First, there are breadwinners trying to support a family. This is relatively uncommon; such individuals represent only about 15% of minimum-wage earners, or about 0.3% of all wage and salaried employees, according to the nonpartisan Washington Policy Center.

Then there are young people who need entry-level job experience to get on the ladder of opportunity. Half of people earning at or below minimum wage are under 24 and 24% are teenagers, according to BLS. While a minimum-wage increase would benefit heads of households, who retain their jobs, it would typically price America’s youth out of the labor market, particularly America’s working-class youth. A sensible minimum-wage policy would exempt teenagers and students who need these jobs.

Finally, an effective policy would consider geography. Take California: In San Francisco, the unemployment rate was 4.7% in August thanks in large part to the tech boom in nearby Silicon Valley. A mere 80 miles away in Stockton, it was 10.3%. San Francisco’s economy can sustain a higher minimum wage, but in Stockton many people need any job they can find. States and cities should be allowed to adjust the minimum wage based on regional economic conditions or local needs…

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