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On the Minimum Wage

A timeless economic debate has now re-emerged at the forefront of politics. In the new coronavirus stimulus package, Democrats are pushing for a gradual increase in the federal minimum wage to $15 an hour. One predominant argument for an increased federal minimum wage is that it will increase the incomes of low-income workers, which will increase their consumption levels and thus raise the incomes of others in the economy. According to proponents, a minimum wage increase would act as a national stimulus.

This line of argument assumes that low-income workers would, in fact, see a wage increase. However, this has not been shown to be true. According to a University of Washington study conducted on the effects of the Seattle minimum wage increase, from 2014 to 2016, the average low-income worker (defined as those earning $19 an hour or less in any industry) saw a 3% increase in wages and a 9% decrease in the number of work hours available. Translated into dollar terms, this study estimates that the average low-income worker in Seattle experienced a net monthly income decrease of $125. Raising the minimum wage would deprive those of income that need it most.

Minimum wage studies show that as the minimum wage increases, there is not only a loss of working hours for low-income workers but also a decline in the number of low-skill jobs available. The Congressional Budget Office estimates that an increase in the federal minimum wage to $15 by 2025 would cut around 4 million jobs. As the cost of hiring a worker increases, firms are more likely to automate tasks or move jobs overseas where cheap labor is in abundant supply. When discussing the minimum wage, it is important to keep in mind, in the words of economist Thomas Sowell, that “unfortunately, the real minimum wage is zero…”

A massive cost to future generations often goes unnoticed in the debate over the minimum wage. Those most hurt by an increase in the minimum wage rate are young entry-level workers with little to no job experience – about 40% of those currently working minimum wage jobs, according to a 2019 Bureau of Labor Statistics study. An increase in the minimum wage would make it much harder for a worker with no experience to enter the workforce. Our society loses when young people lose the opportunity to build human capital; these inexperienced workers would be deprived of immediate income and valuable job experience that translates into greater future earnings. By removing low-wage jobs, a higher minimum wage makes it harder for young workers to improve their economic prospects.

Further, those in favor of raising the minimum wage are overlooking one of its most pernicious effects. By causing a surplus in the labor market, minimum wage laws make it easier for employers to discriminate in hiring. Indeed, one of the major reasons a minimum wage was instituted in the first place was to discriminate against people of a certain race. Because there are more qualified job applicants than there are jobs, employers who turn away workers solely because of their race, gender, culture, religion, or political views would need not worry about depriving their business of talented workers. The minimum wage deprives workers who belong to the “unfavored” social class of the time the ability to offer a lower wage rate than those who belong to the “favored” social class of the time. Thus, this policy makes it harder for people belonging to a certain group to get a job.

In a free market, employers who select employees based on social or external criteria would face an economic cost of doing so because they must either turn down cheaper labor or deprive themselves of qualified and productive workers who might not look or think like them.

A minimum wage harms society by reducing the economic cost an employer may face by choosing workers based on the god they worship or their skin color rather than based on their merit.

Contrary to what advocates of this policy may claim, a higher minimum wage hurts those it claims to help. This proposal would deprive people of income, job experience, and the opportunity to be judged solely on merit. Raising the federal minimum wage would not enrich our society – it would impoverish it. //

Christopher Kitchens

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