At Minimum, a Big Loser
President Obama brought the minimum wage debate back into the news in a big way in his State of the Union address, when he proposed raising it from $7.25 to $9.00 an hour. The president’s proposal is bound to face the usual conservative opposition, but his progressive allies should also think twice about trying to raise the minimum wage.
The goal of the minimum wage is to make the poor better off. And raising the minimum wage to $9.00 would certainly make some workers better off—which is precisely why minimum wage hikes are popular. It is a rare poll that finds less than a two-thirds majority in favor of minimum wage increases. The trouble is that millions of people can be wrong, and often are. This is one of those cases.
The raises that some workers would get come with a tradeoff: Other workers would make less. Some workers would have their hours cut, at least partially canceling out their hourly raise. Some workers will be shown the door, cutting their hourly pay to literally nothing. Other workers will never be hired in the first place.
This tradeoff causes a regressive income redistribution—precisely opposite its intended effect. Instead of taking from the rich to give to the poor, minimum wage laws take money away from the absolutely poor who lose their jobs, and give it to the somewhat less poor who still have theirs, plus a raise. This is not the way to lift a society out of poverty.
In fact, the population groups that minimum wage hikes hurt the most are precisely the ones that progressives most want to help: the young, the elderly, and the working poor.
Young people tend not to earn a lot because they haven’t had time to gain experience and skills. They’re not productive enough at this stage in their lives to make it worthwhile for an employer to pay them high wages. The higher the minimum wage goes, the more young people are priced out of after-school or summer jobs. When they finish school, they enter the workforce with less experience — if any. High minimum wages remove the lowest rungs from the economic ladder — and for some people, the lowest remaining rung is too high to reach.
Experience is not a problem for the elderly. But for some of them, an increased minimum wage would be. For some people, Social Security and retirement savings aren’t enough to get by on. Taking on a part-time job in retail or food service can be more than just something to do. It’s a way to help pay the bills. As age and ailments take their toll on productivity, older workers might not be able to command wages as high as in their mid-career days. A minimum wage hike could very well hurt such people instead of help them.
For the working poor, the effects, as noted, make up more of a mixed bag. But progressives want to help all of the working poor, not just some of them, and a higher minimum wage doesn’t meet that standard. They should look to other policies that don’t distort labor markets and raise unemployment, such as a more generous Earned Income Tax Credit.
Then there is the matter that high minimum wages help big businesses at the expense of smaller competitors. When states are considering hiking their minimum wages, big companies like Walmart routinely lobby in favor of the increases. They know that while they can afford the extra payroll, the mom-and-pop store down the road might not be able to. Advantage: Walmart.
Just because a progressive proposes a policy doesn’t mean that the policy is, in fact, progressive. A high minimum wage causes regressive income redistribution. It keeps young and elderly people out of gainful employment. It helps only some of the working poor, and it actually hurts others. It favors big businesses over small businesses. These are all reasons why progressives should reconsider their support of what is fundamentally a regressive policy.