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$15/hour Minimum Wage: A Very Bad Joke

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.

NewWillMcMahonIconThe 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

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7 Responses

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  1. docnick
    May 11, 2013 - 07:14 AM

    No its not funny anymore…. There was a time when we would say that someone was so dumb they would shoot themselves in the foot…. We keep the foot shooting up till the manufacturing jobs moved to some unknown place.

    The service jobs workers are now taking their turn with the gun….

    Good article…Write more…. docnick

    Reply
  2. Fred
    May 10, 2013 - 11:16 PM

    Australia’s minimum wage is over $15/hour for ages 20 and up, and they have 5.5% unemployment.

    San Francisco’s is the highest in the nation at $10.55/hour, and they have a 6.3% unemployment rate.

    Also, a business would not have to “double” it’s total profits to double wages. Apple and Exxon Mobil make billions and would not need to have higher profits to increase wages, while other businesses are actually breaking even so “doubling” their profit of zero wouldn’t necessarily work. Costco and Trader Joe’s and other businesses already pay much higher than minimum wage, and wouldn’t need to earn a penny more to deal with a higher minimum wage. You need to know the context of how many minimum wage employees they have and their current profit margins….

    Reply
    • Barbara
      May 12, 2013 - 03:47 PM

      Unemployment numbers are based on people “looking for work”. With more folks going on unemployment and disability or plain not looking anymore, The unemployment rate goes down. Those are easily manipulated numbers. Higher wages increases the price of goods purchased. Look at the price of a hamburger in Norway. Oil money funds Norway for now, till they run out of it. Once that happens, their little utopia runs dry. Good intentions without common sense are detrimental to a nation’s economy. That is where the U.S. is now. Check it all out.

      Reply
      • Fred
        May 13, 2013 - 09:42 PM

        What are you rambling about? Yes, numbers can be manipulated, but are you saying we cannot learn anything from data we collect?

  3. Christopher Rushlau
    May 10, 2013 - 11:53 AM

    So what do you make of the following constellation of events? “The Israel lobby is stronger in Congress than it’s ever been,” said former Democratic US Senator, etc., George Mitchell two years ago. The Citizens United decision has in some sense opened the floodgates for money to flow into politics. The income and wealth disparities in the US have been growing since the ’70′s, and indeed it is the Republican Party that seems most ridiculous in this light, urging more power to the rich. We’re just coming off two suicidal wars with no sign in sight of a rational defense policy, while global forces of reform are eddying around Israel, whose racist legal design (consider the odds of getting a building permit depending on your government-assigned ethnicity) is more and more of an anachronism.
    If the test of politics is “what works”, what does work in the US today? I agree, this minimum wage proposal sounds ridiculous, but so does Obamacare, Israel, college (have you had a real conversation with a college professor ever?), religion as represented by organized worship (ditto). In fact the only thing that seems to be still working is human nature, and part of that nature, the key part, is that a person knows bullsh*t when she sees it. Whether she’s going to do anything about it is another question. A political question. “How much justice can you afford?”

    Reply
  4. Jack Penland
    May 10, 2013 - 11:17 AM

    You neglected one other downside which I have noticed in a decidedly unscientific bit of research I have done, which is that everytime the minimucm wage is raised, prices at the gas pump and grocery store go up also, to the point where the raise is not only negated, but the recipient, along with all other consumers, is, in many cases, left with even less buying power. When wages go up, so do prices, usually more than wages.

    Reply
    • Ellie
      May 10, 2013 - 02:39 PM

      I have concluded the same simply from my own life experience, unscientific as that may be.

      Reply

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