John Locke Update / Research Newsletter

Being vs. seeming in the minimum-wage debate

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This entry is a follow-up to the previous discussion, titled "Work at today’s minimum wage is better than ‘moral’ unemployment."

Here let us begin with a concession to good intents. People are rightfully moved by the thought of their fellow man toiling in menial work for small wages. They understand how much they themselves struggle to make ends meet with greater earnings. They would like to help, to do something, but they cannot ultimately solve a problem that even Jesus said would persist ("You will always have the poor among you").

The emotional tug comes with a tendency to inflate the problem. A recent Pew Research look into just who and how many earn the minimum wage acknowledged this tendency. "Perhaps surprisingly," the report stated, "not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to."

Only about 2.6 percent of the nation’s workforce are paid at or below the federal minimum wage. Slightly over half of them are between the ages of 16 and 24, and about one-fourth are between the ages of 16 and 19 — which means they are new to the work force, often unproven, and often not educated beyond high school. They are getting startup wages because they are startup workers. Nearly four out of five are white, and half are white women. About two-thirds work part-time.

Superficially, then, the problem seems this way: On one hand, poor laborers barely earning an honest living; on the other, employers barely paying poor laborers.

That leads to the superficial solution: Someone needs to make the employers pay the laborers more.

Who? Well, the only one capable of exerting that much force is the government.

It’s not a magic bullet, but it does cause harm

Here is where good intentions, sympathy, and the superficial solution fail. All the government force cannot make employers’ budgets magically expand to cover the higher wages. It cannot make consumers change their buying habits to make the higher wages affordable to the employers.

A higher minimum wage also cannot make some employees still employable at much higher wages. Consider someone who perhaps has poor skills or little job knowledge. Perhaps there is someone with a checkered past who promises he’s trying to set his life straight. Think about a young mother who made poor decisions before but who might be serious about work to help give her child a better shot at life. It could even be a teenager who doesn’t have reliable transportation or even a strong positive role model at home, but who seems to have a desire to lift his situation through work.

The employer might be willing to take a chance on giving this person a shot at or a little above the present minimum wage. At a much higher wage, he might not be able to.

The employer may be betting that this person could develop into a more productive and valuable hire through experience and on-the-job training. That bet — I would like to see if this employee can develop given this opportunity — is the kind of choice an employer can make if his cost for being wrong isn’t too high.

The new hire and the employer become partners, not opponents. The employee provides labor and helps the business become more profitable, and the employer provides wages and helps the employee become more valuable through the experience, skills, and intangibles he gains.

Forcing expanded labor prices on real-world inflexible budgets makes employers scramble to cut costs elsewhere. One choice they’re likely to make is to reduce the number of their employees. They might also cut the hours employees work. They might turn to automation, an increasing option. If they can’t cut costs, they will go out of business — meaning they will cease being an employer altogether and join all their former employees in the ranks of the unemployed.

If they have to reduce their employees, who would be the first to go? The ones they’re taking the greatest chances on, the partnerships they otherwise would like to have if they had a few more wage dollars available.

Economists are in widespread agreement over the negative effects of raising the minimum wage. Four out of five economists agreed that "A minimum wage increases unemployment among young and unskilled workers." Where there is debate among economists is usually over the net effects of slight increases, and not over what the current campaign is demanding, which would be more than doubling the minimum wage, from $7.25 per hour to $15.

"The young and unskilled" would be the ones left out. A minimum-wage increase would benefit workers whose employers decide they would still be valuable to them at the higher wage. Their artificial wage boost, however, has a steep cost to the workers who get left out. They are generally the least employable, the least skilled, and the most in need of getting and of learning how to keep a job.

This superficial, compassionate solution tends to deliver the greatest harm to the very people most in need of help. Hard as it might seem against the pat answer, a true compassion would seek to avoid, rather than invite, this harm.

The tension is the hard choice signified in the North Carolina state motto: Esse quam videri. To be rather than to seem.

To be an advocate for doubling the minimum wage is to seem to care for poor workers. To seem, but effectively not to be.

To seem opposed to poor workers by resisting such a massive increase in the minimum wage is to be an advocate for the employment and ultimate betterment of the poorest, least skilled, and hardest to employ workers.

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Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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