Minimum wage policies—Part two

(In addition to other information sources mentioned herein, I also relied on the National Center for Policy Analysis and The Heritage Foundation. Here’s my opinion on a topic that has much bipartisan disagreement.)
The federal minimum wage had its introduction in the 1938 Fair Labor Practices Act. It was originally intended as a solution to child labor exploitation. Clearly, the goal has shifted to one of combating poverty.
Last time, I discussed the incremental increase of “a dollar or two,” which has traditionally been the debate. Recently, the debate has often switched to a huge and transformational $15 minimum wage, and that’s the subject of this analysis.
Transformational minimum wage legislation—the $15 per hour issue.
For quite a while, the “$15 per hour” issue was just talk, but now it’s gaining traction. Initially, several cities passed rules implementing this huge increase in minimum wages. Then California and New York state both passed laws establishing the $15 minimum. And now serious attempts are being made at the federal level. Senator Bernie Sanders introduced a bill providing for a graduated increase to $15 over four years, and Senator Dick Durbin jumped on board to co-sponsor the legislation.
Here are some observations about an increase to $15:
• The major drawback of the smaller, incremental increase discussed last time, is that the benefit would not reach the intended target, the working poor—statistically a fairly small portion of the population. An increase to $15, on the other hand, would affect nearly one-third of the workforce—almost 38 million jobs.
• Credible measurements and predictions by The Heritage Foundation indicate that significant costs of the smaller, incremental increases are born by the employer, and there isn’t a proportionate decrease in employment. It’s predicted that the larger increase to $15 would cause approximately a 7 million decrease in jobs by 2021—the employer is expected to “swallow” only a fraction of this cost increase.
• If jobs are lost as predicted, I believe that lower-skilled workers will be impacted the most.
• The cost of a $15 minimum expands to $18.61 when considering all costs of employing full-time employees. This only makes a bad situation worse.
• The entire country would be subject to the same minimum wage. This would produce very different impacts state by state. Imagine the impact on a lower cost of living state compared with New York or California.
• These very real state-to-state disparities would cause much more inflationary pressure in the low cost states than in those currently on the high end of comparative living costs.
• An important employment opportunity for youth would likely be mostly lost because a special exception for them isn’t expected.
This viewpoint isn’t just ideological—i.e. shared by republicans and conservatives alone and opposed by democrats and progressives. Harry Holzer once served as chief economist in President Clinton’s Labor Department, and now is a senior researcher for both the Brookings Institution and the Urban Institute. He shares an opinion with many other liberal economists, but he is more public in expressing his opinion. He’s on record opposing the $15 minimum wage for a very practical reason:
“[S]uch increases are extremely risky. In job markets where young or less-educated workers already have difficulty finding jobs and gaining important work experience, such mandates will likely make it much harder. . .”
While the $15 minimum would cause millions of lost jobs, I also question whether the benefits will actually accrue to those surviving workers who do end up with higher wages. A $15 minimum would represent a significant increase for almost one-third of the workforce, and it would “trickle up” throughout the remaining workforce. Its economic impact would be huge, but I fear misdirected. The inflationary impact would be unprecedented and soon prices would reflect the higher wages, thus negating desired purchasing power gains.
My friends, I fear all we would have left would be inflationary prices, no real relative earnings benefit for anyone, and a materially shrunken labor force. We have to be careful what we wish for. I’m convinced this isn’t something that would work for workers or the overall economy.