Minimum wage hikes hurt poor workers
As we can see from the recent bidding war of the two parties’ presidential campaigns, raising the minimum wage is a politically popular position.
Donald Trump has flip-flopped, recently pledging to hike the federal minimum wage to $10 an hour with more raises to come as soon as a booming economy allows for it. “I don’t want people to be in the $10 category very long. I believe it should be raised,” he said on Fox News. During the primaries, Hillary Clinton vacillated and then endorsed primary opponent Bernie Sanders’ call for a $15-an-hour minimum wage.
Regardless of what happens at the federal level, many state and local minimum wages are going up. Michigan this year raised its minimum wage from $8.15 to $8.50 an hour, part of a stair-step hike on the way to $9.25 per hour in 2018.
There is, however, a good reason why both candidates hesitated before endorsing a higher minimum wage. They know that even in a booming economy, there is a trade-off between minimum wage hikes and jobs and hours. This is especially true if the minimum wage is jacked way up.
Seattle, Washington, passed a stair-stepped but whopping increase from $9.32 to $15 an hour in 2014. The step to $11 happened at the beginning of 2015 and this year it was hiked to $13. Already, the measurable effects are not good.
A University of Washington study, which practically bent over backward to turn that economic frown upside down, nevertheless found that recent hikes had reduced the employment rate of low-wage workers and reduced their hours.
These low-wage workers also “transitioned to jobs outside Seattle at an elevated rate compared to historical patterns.” If they commuted to these jobs from Seattle, they got socked with rising rents and higher transportation costs. Even the lucky ones who could find jobs in the city weren’t so lucky. “At most, 25 percent of the observed earnings gains — around a few dollars a week, on average — can be attributed to the minimum wage,” the UW economists concluded.
Moreover, a minimum wage hike does not hit all workers equally. Skilled workers — techs, nurses, plumbers — already make wages well above the minimum wage and can probably afford the bump in prices for food, goods and services that a minimum wage hike produces.
For other, lower-skilled workers, however, the minimum wage simply raises the price of being poor. Prices go up, hours go down, jobs are more scarce.
One of the hardest things for young workers to do is to get their foot in the door, their hand on that bottom rung of the ladder. The more well-to-do, with their valuable connections don’t have a particularly hard time of that. But a lack of access can be crippling for youths without them, especially when they are poor minorities.
The unemployment rate for young black American would-be workers currently stands at nearly 20 percent, according to the Bureau of Labor Statistics. Minimum wage hikes won’t do one thing to make that dismal employment situation any better and could make it significantly worse.
And that’s in a good economy. If the economy heads south, practically the only thing a higher minimum wage would be hiking is unemployment.
Jeremy Lott is an adjunct scholar at the Mackinac Center for Public Policy.