Minimum Wage, Maximum Stupidity
California is the latest state to dive headfirst into the shallow waters of raising the minimum wage. Predictably they are about to suffer, not a broken neck, but instead further injury to their already lackluster economy. Governor Jerry Brown recently announced a deal to raise the state minimum wage to $15 an hour by 2022.
This follows the efforts of other cities to raise their minimum wage last year, specifically Seattle and San Francisco. How did that work out? For large businesses that could pass on the wage increase to customers, no big deal. For smaller businesses such as bookstores or restaurants, not so well. Small businesses in competitive markets are unable to raise prices enough to cover their higher labor expense and instead reduce workers’ hours or simply reduce workers.
Los Angeles-based American Apparel, employing 4,000 workers, responding to the wage increase, “Said it might outsource the making of some garments to another manufacturer in the U.S., and wipe out about 500 local jobs.”
Another LA clothing manufacturer, Joompy, selling its goods to large retailers such as Forever 21, faces a similar predicament. An item formerly costing $5 to produce now costs $6.50, and the big retailers are buying elsewhere to keep their own costs down. As a result, “Joompy may have to start importing goods instead of producing them locally.”
Liberal bastion of higher learning, tolerance, and diversity, the University of California, Berkeley fired 500 employees a week after Governor Jerry Brown signed the new minimum wage bill into law. Coincidence or economics?
Should this be any surprise? Not to anyone with a basic knowledge of economics. One of the first things taught in Economics 101 is the demand curve. Raise the price of something and demand for that something goes down. And vice versa. Put your house on the market for a higher price than it’s worth and see if any buyers are interested. Conversely, set the asking price for less than it’s worth and you will have a bidding war.
Labor is no different. A wage is the price of labor. Raise the wage and fewer employers will want to pay that wage, instead employing fewer workers or giving them less hours. Great for the worker receiving the new higher wage and maintaining their hours. Not so good for the employee laid off or now working part time. Or those replaced with self-serve kiosks, another option to reduce labor costs.
It’s election season and raising the minimum wage is a campaign issue for candidates. Socialist Bernie Sanders wants “a national $15 per hour minimum wage.” Socialist wannabe Hillary Clinton also wants a $15 federal minimum wage, but with stipulations, phasing it in gradually and perhaps not at all in low cost of living areas.
Their hypocrisy is rich. Bernie pays his interns only $12 per hour. Hillary is worse, paying nothing to interns for her campaign or the Clinton Foundation.
Why only $15 per hour as the minimum wage? Why not $20 or $25 per hour? Is $15 really a “living wage”? This translates to roughly $30,000 per year, not even above the 138% Federal Poverty Level which would qualify a family of four for Medicaid. Has anyone asked proponents of a higher minimum wage why only $15 and not $50 an hour?
Who actually earns the minimum wage? Is it the breadwinner for the above family of four? Or a middle-class teenager working his first job while living at home? The Pew Research Center answered the question. Half of minimum wagers are age 16 to 24 and a quarter are age 16-19. Two-thirds are part-time workers. 55% work in leisure and hospitality and 14% work in retail, where tips and commissions supplement wages.
The minimum wagers are typically not the family breadwinner. Those under age 25 live in households with an average family income of $65,900. For those over age 25, the majority live above the poverty line, most work part time, and only 5% are married. Rather than being breadwinners, the typical minimum wage earner is a suburban teenager, not a single parent.
The minimum wage is popular among limousine liberals who fancy themselves as champions of the poor and downtrodden. Unfortunately raising the minimum wage has little effect on poverty or standard of living. Instead it often has the opposite effect of reducing employment and job opportunities, particularly among entry-level workers in low-skilled jobs. In other words, among those who need it the most.
Interestingly the New York Times had this issue right. “The Right Minimum Wage: $0.00” they say. “The idea of using a minimum wage to overcome poverty is old, honorable -- and fundamentally flawed.” The only problem was they wrote this in 1987. But hey, even a broken clock is right once a day.
Brian C Joondeph, MD, MPS, a Denver-based retina surgeon, radio personality, and writer. Follow him on Facebook and Twitter.