I recently interviewed Elaine Parker, a leader of the Jobs Creators Network, about the nationwide push for a $15 minimum wage. Federal government analysts have determined this effort would create an unmitigated economic disaster resulting in the loss of up to 3.7 million jobs. Accordingly, a government-mandated minimum wage should be left up to the states, as they best understand their particular circumstances, including variations in the cost of living, which varies even within a state.
There is no doubt that living on anything less than $15 per hour is virtually impossible in a place like Santa Barbara, because nearly everything costs more here than it does elsewhere, including housing, fuel and utilities. Of course, many of these costs are a function of political decisions, but instead of admitting the same, progressives like to double down and say they are addressing the situation by way of mandating a “living wage.” However, raising the minimum wage doesn’t really solve the underlying problem; instead it makes it worse, because all businesses have no choice but to pass on the increased labor costs to their customers, meaning the cost of everything continues to go up. What we really need are higher-paying jobs that are a function of the free market.
The biggest lie out there is that a minimum wage needs to be a “living wage,” i.e., a wage that sustains the average working adult. The truth of the matter is that minimum wage jobs are typically filled by people who have extremely limited skills and experience. These workers are expected to, and free to, move up or move on after gaining the skills and experience to get a better-paying job.
So, when I hear some sob story about a person who can’t pay their bills because they have been stuck working at a minimum wage job for several years, well, I don’t blame the “greedy” employer. Like most people, I moved beyond the minimum wage at age 16. Absent exigent circumstances, such as a depression, I put the burden on the employee to find a better job.
Small businesses employ the majority of Americans. Most of these business owners are not wealthy, as they earn slim profit margins of 3-5%, themselves earning but a modest income for the hours they work and in return for the risk incurred by way of owning a business. These businesses can’t withstand a $15 minimum wage, especially in poorer communities. Why? Because minimum wage hikes don’t just affect the bottom-wage earners, as everyone else in the company will demand that their wages go up proportionately. That is, somebody making, for instance, $3 more per hour than the current minimum wage will demand their hourly rate stay $3 above the new minimum wage. Hence, a higher minimum wage means struggling employers have to be able to withstand subsequently higher costs all the way up the food chain.
Another serious problem is that the higher the minimum wage, the greater the inducement for businesses to save money by automating, thereby eliminating minimum wage jobs. For instance, the kiosk at McDonald’s doesn’t incur the costs associated with overtime, lunch breaks, paid vacations, health care, Social Security, Medicare, and workers’ compensation.
The debate about minimum wage hikes is akin to stepping over a dollar to pick up a penny. That is, there are an estimated 7 million good-paying jobs ($50,000 per year) waiting to be filled. As Ms. Parker reported, by addressing a skills gap, America will solve the problem of the wage gap. We must focus our efforts on training low-wage workers to qualify for these jobs. One place to start is restoring and funding vocational training in our nation’s high schools and community colleges.