Well, this isn’t a typical election year. Why should the perennial fight over the minimum wage be any different?
We usually hear calls to raise it by a dollar or two. The current federal minimum wage is $7.25, so you’d expect advocates of a higher starting salary to call for $8.25 or so. So what are we to make of the push to hike it to $15, and the fact that it’s catching on with many federal, state and local lawmakers?
California and New York have approved a phased-in, $15-an-hour starting salary. Several cities, including Washington, D.C., San Francisco, Los Angeles and Seattle have, too. In Congress, meanwhile, Bernie Sanders has introduced legislation to raise the wage to $15 an hour over a four-year period.
In short, the minimum wage is being super-sized. Should we be concerned? Only if we care about losing millions of jobs.
That may sound hyperbolic, but consider why the minimum wage is so low: it’s typically paid to workers who are just starting out. They often have no résumé and no real skills (yet), so employers are taking a chance on them.
Most of these employees prove themselves and quickly advance. Two-thirds of minimum-wage workers earn a raise within a year. For most, the minimum wage is just a starting salary.
The question is, how high do we want to place the price of what is, essentially, a bet? If it’s reasonably low, employers will be more willing to give low-skilled workers a chance. If it’s too high, they will become more selective, and they won’t be able to hire as many people.
Remember, too, that $15 an hour is actually $18.61, as far as the employer is concerned: $15 for the employee, plus 19 cents in unemployment insurance taxes, $1.15 in payroll taxes, and $2.27 in Obamacare penalties. How many employers can afford that?
As labor expert James Sherk notes in a recent research paper:
Companies hire workers when the additional earnings their labor creates exceeds the cost of employing them. Starting wages of $15.00 per hour mean full-time employees must create at least $38,700 a year in value for their employers.
Such a high hurdle would make it much harder for less experienced and less skilled workers to find full-time jobs. Many of these workers are not yet productive enough to create that much value for their employers, and businesses will not hire them at a loss.
Even liberal economists have noted that workers could be hurt if we mandate a $15-an-hour minimum. Harry Holzer, a chief economist in the Clinton administration, opposes it. According to Alan Krueger, the former chair of President Obama’s Council of Economic Advisers, “a $15-per-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”
There are others, but they tend to keep quiet, unfortunately. Dylan Matthews of Vox.com has written of a “fascinating phenomenon: left-wing economists saying off the record that $15/hr is super-dangerous, but not saying that publicly.”
They should. Look at what happened after Los Angeles raised its minimum starting wages to $15 per hour: American Apparel eliminated 500 clothing manufacturing jobs in the city. The company had planned to relocate those jobs within California, but after the state issued its own minimum-wage hike, American Apparel started looking for ways to move production outside California.
We can expect other companies to do likewise. And if $15 an hour becomes nationwide, don’t be surprised when they move operations outside the U.S.
Studies of employer responses to higher wages find a 10 percent increase in labor costs causes firms to reduce employment of less-skilled workers by 6.8 percent. That implies $15-an-hour minimum wage would lead to a loss of about seven million jobs.
Short-term political gain, long-term economic pain. That’s $15 minimum starting wages in a nutshell. It’s time to pink slip this bad idea.