A Federal Minimum Wage Hike is Not the Answer

Courtesy of the Reason Foundation

By Jay Gupta

Since his Presidential campaign in 2016, Senator Bernie Sanders (I-VT) has called for raising the federal  minimum wage to $15 per hour. Recently, many mainstream Democrats have joined that call. The consensus on this issue is so strong that the eight Democrats who voted against putting a minimum wage hike in the latest stimulus bill carefully coached the rationale for their rejection in terms of the appropriateness of the wage hike to the stimulus bill, and not in terms of their opposition to the wage hike itself. I believe there is a strong argument for why the wage hike itself should have been opposed, for a $15/hr federal minimum wage will bring about the opposite of its intentions, increasing poverty and joblessness.  

States like California and New York have already moved along the path towards a higher minimum wage.  Cities like San Francisco and New York have instituted $16.07 and $15.00 minimum wages, respectively. In  cities like these, with high median incomes and high costs of living, $15 dollar minimum wages make sense.  Such is not the case in states and cities with lower costs of living, where a federal minimum wage hike would  devastate the local economy, with small businesses bearing the brunt of the economic downturn.  According to a report released by the nonpartisan Congressional Budget Office, raising the minimum wage to  $15/hour federally would raise 900,000 people out of poverty, but would trigger a loss of 1.4 million jobs. The  trade-offs of such an initiative should merit pause, a moment to consider a national policy on minimum wages  that makes the most sense for all locales without prioritizing the needs of urban residents of particular locations  over all other constituencies. After all, individual cities can and should take the initiative to handle local issues  without relying on the national government to create a blanket policy that places Springfield, Missouri and  Morristown, Tennessee, where you can rent a one-bedroom apartment for less than $700/month, on the same level as New York and San Francisco.  

After all, in Springfield, Morristown, and elsewhere, a hike in the minimum wage will foster increased  automation and an overall loss of jobs, not the improved standards of living that are intended. Professor Joseph Foudy, who teaches economics at NYU Stern, agrees. We know that raising the minimum wage will mean“ in some parts of the country, some workers will be pushed out.” In contrast with the Earned Income Credit, or economic payments from the government, which Foudy stressed both works effectively to mitigate poverty, a minimum wage hike “doesn’t create incentives for companies to hire workers.”  

There is, finally, the question of whether a minimum wage hike helps in the ways that it is intended. According  to the Bureau of Labor Statistics, about half of minimum wage workers are 25 years of age or younger. Many  don’t have families or dependents. Whether or not a minimum wage hike is the best way to target minimum  wage workers who need help supporting their family’s needs to be the focus. A national policy that has the risk  of devastating small businesses, the backbone of our economy, should not be taken lightly.

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