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May 13 2015

A $12-minimum wage mandate threatens entry-level workers

Watchdog.org
Hadley Heath

A $12 minimum wage proposed by congressional Democrats would hurt the workers lawmakers are trying to help — those lacking experience and education.

Wage mandates “can destroy existing jobs, and they can result in fewer future jobs being created,” Hadley Heath Manning, of the free-market Independent Women’s Forum, told Watchdog.org.

“It’s harder to see the effect of the latter, but it’s just as important,” Heath said in an email. “This job-loss effect is particularly hard on teenagers and low-skilled, entry-level workers.”

Heath pointed to several sources, including a CNN Money story about Seattle business owners grappling with a local $15 minimum wage being phased in over several years.

A $12 minimum wage would be imposed nationally by 2020.

The Raise the Wage Act — introduced by Washington Sen. Patty Murray and Virginia Congressman Bobby Scott — would be a huge leap from the existing $7.25 minimum, topping all but the highest state mandates.

The Raise the Wage Act would limit options for people willing to work for less and employers forced to pay low-skill workers more, Heath explained. Layoffs and reductions in hiring are just two of several likely outcomes.

“When labor costs go up, that money has to come from somewhere — consumers will find that prices go up or stockholders will find that they are getting less returns,” she said.

“Few may be crying over the idea of lower returns for stockholders, but lots of stocks are held by people who aren’t rich and receiving pensions,” Heath continued. “And lower profitability discourages investment, which is important for all of us in terms of job creation.”

Small businesses — from restaurants to bookstores to coffee shops — are especially ill-equipped for costly government mandates. The Faces of $15, a project of minimum wage critics at the Employment Policies Institute, tracks negative consequences small businesses face in Seattle and elsewhere.

If the $15 minimum wage demanded by labor unions is too much, might $12 be the magic number? Or was President Obama on track when he began pushing a $10.10 minimum wage?

“The $12 by 2020 plan is more incremental but more permanent, as it would tie minimum wage to median wages and would also harmfully phase out the lower subminimum wage for tipped jobs,” Heath said.

“So, in the short run, perhaps the president’s plan is worse. In the long run, the $12 by 2020 plan is worse,” she opined.

“We shouldn’t aim to get minimum wage ‘just right.’ There should be no minimum wage at all,” Heath said, citing economist Milton Friedman’s point that the real minimum wage is always $0: “That’s what jobless workers earn.”

Although it’s not $15, union officials see Murray and Scott’s $12 by 2020 plan as progress.

Mary Kay Henry, president of Service Employees International Union, and Richard Trumka, president of union coalition AFL-CIO, endorsed the bill the day it was unveiled.

Their endorsements were accompanied by a lengthy Economic Policy Institute defense of the Raise the Wage Act — hardly a surprise, since Henry sits on EPI’s board of directors, and Trumka is chairman of the board.

Wage mandates are a boon to labor bosses because they hamper competition from non-union businesses and often mean contractually obligated raises for union workers, which increase union dues taken as a percentage of wages.

Employers can afford a mandated $12 minimum wage, EPI explained, because wages haven’t kept up with productivity gains. EPI used data from 1968, the year the minimum wage peaked relative to overall wages, as a benchmark.

EPI economist David Cooper told Watchdog.org, “We believe the economy could support a $12 minimum wage by 2020 without any negative effect on employment.”

“Phasing-in the increases to $12 over a five-year period would be a pace consistent with the increases the US has done in the past two decades, which have been studied extensively and found to have had little to no effect on employment,” Cooper said in an email.

“Shifting more income into the pockets of low-wage workers would likely put those dollars right back into the businesses facing higher labor costs, as workers go out and spend their increased earnings,” he explained.

But Heath noted the argument that minimum wage mandates cycle money back into the economy is flawed because “the money that is going to wage earners has to be taken from someone else.”

“If you want to help the poor, then the focus should be helping low-skill workers get a job in the first place,” she said.

“The good news is that some employers — like (Walmart), for example — are deciding to raise wages on their own. But a government mandate to force all employers to follow suit could end up harming the very people that they want to help.”

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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