July 16 2014
If Chicago adopts an ordinance that hikes the city’s minimum wage to $13 an hour, phased in by 2018, will the move bring more prosperity to struggling workers there?
An editorial about the proposed minimum wage hike that appeared in the Chicago Tribune starts out not in Chicago but in North Dakota, where the economy is booming:
Before we mull what hiking the minimum wage in Chicago by 57 percent would do, detour with us to North Dakota, where the latest measure of unemployment is a measly 2.6 percent. Last month, a sign outside a Wal-Mart there went viral: "Now hiring the following positions: Cashier $17.40/HR." Other openings: $17.20 an hour for a job in apparel to $17.60 for a meat department position.
The wages advertised by the Wal-Mart in North Dakota are more than double the federal minimum wage of $7.25. It is not because North Dakota has a high minimum wage—it doesn’t. It is because the state is home to an energy boom that has created such a demand for workers that businesses have to compete for them.
Chicago’s own Milton Friedman, the editorial points out, “would patiently explain that a free labor market adjusts wages to the availability of workers who have the skills and attributes that jobs require.” Ironically, minimum wage hikes, sold as a way to make life better for minimum wage workers, have the opposite effect: the hike makes it harder for businesses to grow and create a demand for workers.
The editorial notes:
Ask anyone who employs lots of people or only a few. Mandating a higher minimum wage threatens jobs today and job growth tomorrow. It forces businesses to offset the costs. Small companies, the engines of the U.S. economy and the first employers for many young people, have the least elasticity. Some will raise prices and alienate customers; many others will simply slash payroll. "We put our entire life savings into it," Cheri McEssy, owner of a Chicago-based BrightStar franchise, says of her home health care business. "If I have to pay $12, $13, $14 an hour, there's really no chance for my survival."
McEssy has reason to worry. So does every Chicagoan faintly hoping this city attracts more employers. More jobs.
The $13 an hour proposal—which would be a 57 percent hike—has strong backing, including from Mayor Rahm Emanuel Those seeking jobs in Chicago should hope that their politicians stop and remember that the state of Illinois boosted its minimum wage four times in recent years and that at the same time unemployment and the number of families living in extreme poverty in the state grew.
The editorial quotes a caution from Milton Friedman:
The repeated failure of well-intentioned programs is not an accident. The failure is deeply rooted in the use of bad means to achieve good objectives.
Higher wages is a laudable goal, but raising the minimum wage is often the worst way to achieve it.