I remember the first time I ever heard someone earnestly suggest that the minimum wage should be set at $15 per hour. Searching for a good laugh, I had looked up the platform of the Socialist Party USA. There it was, right in between the article calling for guaranteed employment and the one demanding worker ownership of all corporations. I had myself a good laugh at all of this and dismissed it as bolshevik nonsense. Never did I suspect that the idea of the $15/hour minimum wage would return to haunt us. Boy was I wrong.
There has been an undeniable groundswell of support for outrageously high minimum wages in recent months. Back in March, Elizabeth Warren suggested that the that the minimum wage ought to be $22 an hour during a senate hearing. Though her analysis was flawed, it made for just the kind of YouTube video that members of the left-wing intelligentsia love to brag about to their “backwards” conservative friends. As I write this now, fast food workers in my home town of Saint Louis are on strike for a $15/hour minimum wage. They join a strike that has been in progress for about a month, having started in New York and spread to Chicago.
I may have been a bit unfair in introducing the idea of a $15/hour minimum wage in the context of two other very ludicrous ideas in the platform of a political party that has very little credibility but I don’t think that I have been. Raising the minimum wage in such a manner is no less insane an idea than guaranteeing people a right to gainful employment. Most sadly, the people who stand to be harmed the most by this policy are its very advocates.
$15/hour represents more than double the current federal minimum wage, which stands at $7.25. A business which has only a certain amount of money available with which to pay its employees would have to either double its income (which would be very difficult) or lay off half of its workers in order to deal with the increases in the cost of doing business.
But then again, as commentators like Senator Warren have pointed out, businesses have money to spare that they simply aren’t giving to their workers, right? Not necessarily. Contrary to popular belief, a great deal of a well run company’s profits don’t simply go to the executives. They are reinvested in the company, allowing it to grow and employ more people. This, in turn, leads to more business for other employers as well. If a factory has a good few years of profit, they might decide to purchase a new machine, meaning jobs for the people who will operate it and more profitable business for the companies producing parts for that machine. Imagine instead that the minimum wage was doubled. That profitable factory would not have the resources to expand, meaning a loss in business for the machine part makers (who would have to lay off employees of their own) and a lost opportunity for the factory’s would-have-been employees.
Some leftists, however, like to tout the supposed economic benefits of raising the minimum wage. As Peter Drier writes at the Huffington Post “In fact, raising the minimum wage is good for business and the overall economy. Why? Because when poor workers have more money to spend, they spend it, almost entirely in the local community, on basic necessities like housing, food, clothing and transportation.” What Mr. Drier seems not to account for is the fact that this extra spending money in the pockets of the “poor workers” doesn’t represent real economic growth. These workers have more money because it was transferred to them from another part of the economy which has been made weaker as a result. It is true that the workers will spend a little more money, but it’s not as if that money would not have been spent had it remained in the hands of their employers. The economy has, at great cost and inconvenience, been slightly rearranged, but it has not truly grown.
The really troubling thing about this push for a higher minimum wage is the dishonesty behind it. It is reasonable to assume that political leaders understand the principle that making something more expensive lessens demand for it. President Obama understands this principle, at least as it applies to tobacco. In a proposal to increase taxes on tobacco products earlier this month, the president said “Researchers have found that raising taxes on cigarettes significantly reduces consumption.” I find it hard to believe that a man smart enough to successfully run for president could be unaware that the same principle might apply to employment, that making it more expensive for companies to hire new employees might lessen their desire to do so. And yet, just this week, Mr. Obama made the case for a higher minimum wage during his trip to Texas. A cynical man might get the impression that the president, and politicians of his ilk, even understanding the ramifications of such a policy, would pursue it anyway, to the detriment of their supporters, if only to gain a little political power.
The striking workers in Saint Louis, Chicago and New York are the real victims here. They’ve been duped into supporting a policy whose consequences will be hardest on them. Somehow, a $15/hour minimum wage doesn’t seem quite so funny anymore.
Will McMahon | University of Missouri at Columbia | @WilliamAMcMahon