FRONT PAGE CONTRIBUTOR
The minimum wage: a regressive tax on the poor and young
Socialist politics are an unflagging quest to repeal the laws of supply and demand at any expense, provided the expense is paid by someone other than the socialists. Thus we have the great Democrat Party economic brain trust – the same people who said unemployment benefits are the most powerful job-creating stimulus in the universe – gasping like fish stranded on the sun-baked deck of a trawler as the Congressional Budget Office projects their minimum-wage increase could kill up to a million jobs. And not in the customary 10-year “tomorrow will never come” window, but in one concentrate blast over the next two years.
Democrats declare this is unpossible, because they have spreadsheets and fortune cookies and whatnot that prove raising the minimum wage will create a billion zillion jobs. People at the low end of the income scale will have more money to spend, right? And when they spend it, jobs will sprout from the fertile soil of Barack Obama’s walking-dead economy, like dandelions rising to consume rain water. Spending money = jobs. What part of that don’t you wingnuts understand?
Of course, we wingnuts need only point to a little thing called “objective reality,” which has been doing a fantastic job of proving the core assertions of Obamanomics are an even bigger crock than astrology, which a surprising number of Democrat voters also believe in. Obama spent a trillion dollars of “stimulus” money, to far less effect than merely throwing a trillion greenbacks out of helicopters would have accomplished. (That’s no coincidence, because cronies with good political connections and the bloated government itself gobbled up most of that loot.) We’ve had five grinding years of the endless “unemployment emergency,” without much in the way of job-creating stimulus. The headline unemployment rate has dipped a little, but it’s due to people giving up and leaving the workforce entirely.
I’m not joking here: if Obama gets his minimum wage hike, and it does kill off a million jobs, the official U-3 unemployment rate will go down as more unfortunate souls depart the active workforce, and the Democrats will sell it to Low Information Voters as a triumph. Add that to the jobs lost due to ObamaCare, and we might just shrink the workforce enough to let Obama pretend he’s getting somewhere near George Bush’s unemployment numbers.
Hopefully everyone who is not a left-wing ideologue understands the simple truth that raising the price of a resource reduces demand. That goes for labor, too. Of course a minimum wage hike will destroy jobs, and the people hit hardest will be those who can least afford to sacrifice their employment prospects: young people trying to enter the workforce for the first time, and people trying to fight their way out of poverty. There isn’t much the Left could do that would more brutally yank the ladder out of dependency away from their cradle-to-grave welfare clients than jack the minimum wage up, far beyond the market value of such marginal labor.
Using government mandates to increase the cost of labor doesn’t change its value. If your time was worth $7.25 yesterday, it doesn’t suddenly become worth $10.10 today because a politician says so. When the minimum wage is roughly equal to the value of marginal labor, it’s mostly a rhetorical issue, a rule no one really has to be told to follow. Legal workers are difficult to attract if you offer two dollars an hour. (Illegal workers, on the other hand…)
If mandatory wages rise far above the value of low-end labor, employers will simply make do without. They might not fire a lot of people right away, but they will refrain from taking a chance on hiring new people. Remember, the true cost of labor is far higher than the nominal wage rate – by the time benefits, mandates, taxes, and other overhead are factored in, it can be over twice as high as the wages paid to the employee. The Left has taken great pains, over the course of the past century, to ensure that most workers are only vaguely aware of these additional costs. Some of these overhead costs are directly tied to the wage rate. Crucially, so are many union wage and benefit plans – that’s a big reason the Democrat Party, the political arm of Big Labor, is perfectly happy to throw a million jobs away to get a minimum wage increase.
We’re not really talking about $7.25 labor suddenly costing $10.10. We’re talking about people who cost their employers $12 an hour suddenly costing $20, an effect even more pronounced in states with a high burden rate on labor. Taking on such a commitment for a risky employee – a young person with no proven track record of performance, a long-unemployed person seeking to re-enter the workforce – grows less practical. The Left doesn’t mind, because it’s not politically difficult for them to harness the anger of people who have become disenfranchised from the productive economy, without really understanding why. No one’s going to conclude a job interview by saying, “Sorry, kid, but you’re just not worth ten bucks an hour. I might have hired you for seven, but the government says no dice.”
Some minimum-wage enthusiasts point to the net gain in income that might be achieved by higher minimum wages, a phenomenon this week’s CBO projections acknowledge. And we could make net income surge even higher by raising the wage floor to $50 an hour! I sometimes wish there was a serious effort to counter a minimum wage proposal by insisting it should be fifty bucks, and forcing liberals to acknowledge why that wouldn’t work. It is genuinely instructive to work backwards from there, and ask ourselves why so many people who might otherwise be willing and able to find productive employment cannot and will not do so, thanks to the triple whammy of minimum wages, lavish welfare benefits, and the sky-high taxes necessary to sustain the system.
The CBO report alludes to one obvious reason: price inflation due to business efforts to absorb their higher labor costs. This factor is extremely difficult to model with precision, so the Congressional Budget Office doesn’t really try. We can all understand that forcing a “living wage” of $12 an hour for burger-flippers loses quite a bit of its allure when burgers end up costing $20. The effect from the kind of wage increase on the table is likely to be more diffuse, but it will make itself felt… and those old demons of Supply and Demand will once again raise their terrible heads, crushing more jobs as the demand for more expensive goods and services declines. A lot of the industries that employ entry-level labor run on very thin profit margins; they need high volume to survive.
Much of the enthusiasm for raising the minimum wage comes from a misunderstanding of who receives it. An interesting fact from the CBO report is that less than third of the income boost from a wage increase would go to families in poverty. That’s because minimum wage employees are frequently young people who live in middle-class homes. Also, increased minimum wages have a ripple effect through the lower end of the income spectrum, very little of which does any good for the working poor. Meanwhile, the folks who have been frozen out of the job market find it more difficult than ever to re-enter. Wasn’t Barack Obama saying something about forcing employers to give preferential consideration to the long-term unemployed during his last State of the Union address? Well, you can kiss that idea goodbye if the minimum wage is dramatically increased. The pool of “employables” – people who are demonstrably worth higher wages paid for increasingly scarce jobs – will grow ever smaller.
What the poor most need is an environment in which it makes sense to employ them… and, yes, incentives for them to seek employment. We made huge progress during the Democrats’ embarrassing “job lock” spin campaign to deal with the CBO projections for ObamaCare job loss, because – without really understanding what they were saying – those frantic Democrats officially admitted that unemployment is partially a result of people choosing not to work.
Instead, we move further into a grim future in which fewer people work, which means more people consume government benefits (and reliably vote to increase them) while a smaller pool of taxpayers carries the freight. And it’s not just a matter of the tax burden – there is overall productivity to be considered. A smaller workforce with mandated higher wages isn’t going to produce a commensurate increase in total work value. More money will be flowing, but less wealth will be created.
The trade-off of jobs for mandated income might be more readily considered if demand for labor was extremely high, and we had nearly full employment; there would be less job loss due to the higher minimum wage, and our economy would be better able to absorb it. But we’re really not in a position to see off another 500,000 or 1,000,000 people into the shadowy abyss beyond the workforce, where a substantial grey market has been forming. What we’ll end up with is more labor performed off the books, which means no tax revenue. Combine that with the growing tax burden on the people who do work, and the Left’s crusade to push as many low-income workers as possible off the tax rolls, and you’ve got a formula for rapid systemic collapse. I can assure you that opportunity will not be easily found in those days, and nobody will remember Democrat politicians of 2014 stammering nonsense about how raising the price of something inspires businesses to buy more of it.