John Locke Update / Research Newsletter

The News & Observer’s cruel plan for the poor

posted on in Economic Growth & Development, Law & Regulation

The editors of The News & Observer are of the firm opinion that not raising the minimum wage to $15 per hour would be a sign of “disdain for working people.” To oppose such a move would be “preposterous” and out of “hidebound tradition.”

Bold words, if only they could force economics to align with their passion.

Pricing working people out of work isn’t disdain, however; it’s cruel.

What the N&O editors want would be a cruel hoax on would-be working people. I assume they don’t think of it as such. But the origins of the minimum wage were steeped in Progressive cruelty that was shockingly deliberate.

The editors would force all employers in North Carolina to face more than a doubling of the minimum wage (from $7.25/hr. to $15/hr.). They act as if this enormous increase in the cost of labor would have no effect other than to make life easier for “working people.”

Why?

Here are their reasons:

What it does do is put more money in people’s pockets, some of it income they’ll actually be able to spend — at other businesses. It puts more workers in the active economy, not just barely scraping by once bills are paid.

It also reduces the need some people currently on the minimum wage have for support programs such as food stamps. Raising the minimum wage lifts everyone.

Putting money in people’s pockets. This would at best be a wealth transfer. It would not be “at best” for everyone, however. That money would come from their employers. It would have to be money previously used for something else. So either the employers will cease doing business with certain others or find some other ways to conserve, or they will have to shed some employees. Or some combination, of course.

Regardless, it wouldn’t put more money in everyone’s pockets. Imagine being a business faced with (a) these major new labor costs and (b) having lost business from other businesses trying to figure out the new labor costs. You have less income and more outgo; now what? You shed employees. Automation already beckons.

Putting more workers in the active economy. To do what? If you mean more people will be attracted to work, that they will become active job seekers, then be prepared for spikes in unemployment. More supply of a good (labor, in this case) drives down the price (wages). But if there’s a wage floor (can’t go below $15/hr.), only the most desirable employees at that wage will be hired.

Economic research, as opposed to editors’ proclamations, have shown who benefits from raising the minimum wage, and it isn’t the poorest, least skilled, inexperienced, marginal “let’s give him a chance to see what he can do” kind of hires.

This unintended result caused one researcher to complain that, “In terms of need, it is backwards.”

Reducing the need of some people currently on the minimum wage for government support. This is true — but only because of the word “some.” Those who remain employable at the much higher minimum wage will face less need for (more) government support.

The others are flat out of luck. They’ll need more government support in their new joblessness. And remember about how the benefits of the higher wage get it “backwards” in terms of going to those workers who need them most.

Speaking of getting it backwards…

Raising the minimum wage lifts everyone. Utter hogwash.

Permit me a brief foray into word history: hogwash is not to be confused with, say, buttermilk, which in the beloved E.B. White book Charlotte’s Web was used to clean the pig Wilbur en route to the fair. That would imply something palatable just put to an unsavory use.

Actual hogwash, on the other hand, is liquefied garbage, kitchen refuse, slop, swill (the “wash”) fed to hogs.

To be clear, hogwash is putrefied waste generated by people and given as sustenance to unsuspecting pigs. It was banned by the European Union in 2003 out of suspicion hogwash was responsible for the foot-and-mouth crisis.

To return to the point, then, the N&O editors’ assertion that raising the minimum wage lifts everyone, especially to urge more than doubling the minimum wage, is utter hogwash.

Economists, known for their disagreements, are in great agreement on a few things. One thing economists are in greatest agreement upon is the negative effects of the minimum wage, that it increases unemployment among young and unskilled workers.

Those effects are bound to be magnified profoundly if the current minimum wage is more than doubled.

Last fall the University of New Hampshire Survey Center surveyed economists on the idea of a $15/hr. minimum wage. They found vast majorities of economists believe it would result in:

  • negative effects on youth employment levels (83%)
  • negative effects on the number of jobs available (76%)
  • employers hiring greater skills even at entry-level positions (80%)
  • greater difficulty for small businesses to stay in business (67%)

The survey found nearly three-quarters of the economists opposed to the $15/hr. minimum wage.

A recent study published in the Journal of Labor Research by Andrew Hanson of Marquette University and Zackary Hawley of Texas Christian estimated the effects of raising the minimum wage to $10.10/hr. (as proposed by the Obama administration and Congressional Democrats). Hanson and Hawley estimate the hike would eliminate as many as 1.5 million jobs nationwide.

For North Carolina, Hanson and Hawley estimated it would eliminate as many as 46,100 jobs, with other models projecting nearly 50,000 jobs eliminated. Again, those job losses are estimated for a minimum wage increase to $10.10/hr. — which is nearly five dollars per hour less than what the N&O editors say would “lift everyone.”

A recent working paper by economists Jeffrey Clemens and Michael Wither of the University of California, San Diego, published at the National Bureau of Economic Research looked at the previous increase in the minimum wage, which was a 30 percent increase. (The current proposal would hike the minimum wage by 107 percent.) They found it “reduced the national employment-to-population ratio — the share of adults with any kind of job — by 0.7 percentage point” between December 2006 and December 2012.

In other words, Clemens and Wither found the previous minimum-wage increase was responsible for 14 percent of the national decline in employment-to-population ratio.

Clemens and Wither also found that binding minimum wage increases had:

  • “significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with reductions in experience accumulation”
  • “significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings. This curtailment of transitions into lower middle class earnings began to emerge roughly one year following initial declines in low wage employment. Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience.”

That is a key insight, that there are ongoing effects of lost employment opportunities. Work itself is valuable. Lack of even a low-wage opportunity translates into lost work experience, lost advancement opportunities, and a snowball effect of lost earnings.

A previous newsletter on this subject discussed it in light of North Carolina’s motto, Esse quam videri (to be rather than to seem). It concluded this way:

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.

So far the editors of the N&O continue to choose to seem rather than to be.

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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