Of course President Obama does not hate poor people, nor does the most avid tea partier. Few (if any) policies are intended to harm the poor; in fact, most policies are intended help the poor. Unfortunately, good intentions do not always equal good results; such is the case with minimum wage.
Obama claims simply raising the federal minimum wage to $9 per hour “could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead.”
It’s not that simple, though.
“In the real world, setting a floor under the price of labor creates winners and losers,” the Wall Street Journal points outs. While “some workers will get a $1.75 raise” “others -- typically the least educated and skilled -- will be priced out of the job market and their pay won't rise to $9.” Going from $7.25 per hour to $0 isn’t going to get anyone ahead.
In an effort to avoid the unavoidable truth that minimum wage hurts low-skilled workers, theWashington Post’s Wonkblog explained “there are a variety of ways that labor markets can respond — and they don’t all involve more unemployment.”
Wonkblog explains employers could “respond by cutting back on benefits or hours or training.” For those living below the poverty line, those sort of cuts would not be welcomed, and a decrease in training will mean less opportunity for a low-skilled employee to advance, all but ensuring the cycle of poverty continues.
Of course, the minimum wage hike would not take effect in isolation. If implemented, it would occur side-by-side with the ongoing implementation of Obamacare. As Heritage and many others have pointed out, the poor will be hardest hit by the Obamacare taxes and the ripple effect caused by the regulatory burden.
One of the destructive side effects of Obamacare is the costly employer mandate. Employers now have an incentive to give workers just 29 hours per week to avoid triggering the law’s definition of a “full-time” employee. Once a worker becomes “full-time,” the employer must provide the worker with costly health insurance or pay a hefty fine to the federal government.
As National Review’s Andrew Stiles explained, a minimum-wage employee working 40 hours a week could see their weekly wage increase by $70 per week under the President’s proposal. However, if employers cut hours to avoid Obamacare, as some have already announced, that same employee, even with the mandatory wage increase would lose $29 per week.
Wonkblog was not done, though.
Employers could respond to Washington’s wage dictate by “cutting wages for other, higher-paid workers,” essentially transferring money from a $12 per hour worker to a $9 per hour worker. Wonkblog notes there are “plenty of theoretical papers” suggesting “people might work harder and be more productive if they’re suddenly paid more.” Of course, for those workers who were making $12 per hour, effectively $24,000 per year, the incentive may be just the opposite when they are held back for the purposes of pay parity.
Of course, companies could “raise their prices in response” or “just settle for fewer profits.” An increase in consumer services and products is not good for America’s struggling middle class, let alone the working poor. And the idea that increased costs won’t be passed along to the consumer is simply a pipe dream, and something Wonkblog acknowledges is “pretty inconclusive.”
Finally, there is the theory a mandated wage increase is actually good for the employer. Wonkblog explains businesses could “react by trying to squeeze more productivity out” of their minimum-wage employees. (Insert union joke about evil corporations exploiting low-skilled workers here.) But the employer benefits do not stop there. Companies, Wonkblog argues, “might actually save money” because there would be less turnover among entry-level employees.
As the Wall Street Journal editorial board exclaimed, “No doubt employers are slamming their foreheads wondering why they didn't think of that.”
That same editorial notes University of California at Irvine economist David Neumark found 85% of major academic studies focused on the minimum wage "find a negative employment effect on low-skilled workers."
If you’re a low-skilled worker, be on the lookout for a fancy sounding bill to be introduced in Congress, something like the Eliminating Poverty in America Act. If history is any guide, the EPA Act will do you more harm than good.