In case you missed it — and apparently, many Americans did — the president gave his State of the Union speech on Tuesday night. Among his proposals in the speech was raising the federal minimum wage. He talked about this idea the next day, too, on a visit to a Costco in Lanham, MD:
And as I said last night, to every governor, mayor, state legislator out there, if you want to take the initiative to raise your minimum wage laws to help more hardworking Americans make ends meet, then I’m going to be right there at your side.
While Congress decides whether it’s going to raise the minimum wage or not, people outside Washington are not waiting for Congress. And I’m not, either. So as a chief executive, I’m going to lead by example. In the coming weeks, I will issue an executive order requiring federal contractors to pay their federally funded employees on new contracts a fair wage of at least $10.10 an hour. Because if you cook our troops’ meals and wash their dishes, you shouldn’t have to live in poverty.
Let’s accept this premise: nobody wants anybody to live in poverty. But is raising the minimum wage the best way to help those in that economic class?
Conservatives like to point out that raising the minimum wage can hurt job creation, and this claim is backed up by economic studies, even some done by proponents of raising the wage. For example, the Economic Policy Institute (chairman: AFL-CIO President Richard L. Trumka) produced a 2009 briefing paper proposing indexing the minimum wage to growth in average wages. But even this paper acknowledges the many studies showing a negative impact on employment, countering with a few studies showing otherwise and concluding that any negative impacts are small and outweighed by positive results, of course:
“…despite the volume of empirical work on the minimum wage, there is no consensus whether the employment impact is positive or negative, just that it is small. So, while the question about whether the effect is slightly below zero, at zero, or slightly above zero may be an important one among econometricians, for policy makers it is hard to avoid the conclusion that the benefits far outweigh the costs.”
Well, actually it’s not hard to avoid that conclusion if you look at those negative employment statistics in the various studies even EPI has the honesty to cite. In a sluggish economy, negative employment statistics have great meaning to those struggling to start climbing the economic ladder.
But the problem is that making this case to the general public is hard. They don’t see the jobs not created. They only know what they are experiencing, and if they work at minimum wage, or know others who do, it’s tough for them to visualize a negative impact on their lives by raising it.
Here’s one: the costs of goods and services go up when the minimum wage is raised, and this has a disparate impact on poor households. If an employer is faced with higher production costs, he’s unlikely to take a hit on profits. He’ll raise the prices of his products and services, and the public will pay. The Hoover Institute has studied this issue and concludes that such increases in prices disparately impact the poor, especially considering the fact that most minimum wage works do not live in households at the poverty level. In other words, while minimum wage workers who don’t live in poor households see their wages go up, people in poor households see their prices go up, too. Says the Hoover Institute’s senior fellow Thomas E. MaCurdy:
Who pays the higher prices to cover costs? A comprehensive analysis of the 1996 federal hike in the minimum wage estimates that prices rose on a broad range of commodities to fund this increase and that families of all income groups purchase these goods. Families in the lowest 20 percent of the income distribution pay annually an average of $61 in higher commodity costs, whereas families in the highest 20 percent pay only $150 more. The implied coverage of costs is at least as regressive as a conventional sales tax. Moreover, nearly 75 percent of poor families receive no additional earnings, but all paid higher costs following the minimum wage.
To put it more bluntly: raising the minimum wage hurts the working poor by cutting off job opportunities and raising the prices of goods and services they consume.
So, President Barack Obama and his liberal allies might like to think they are aiding the poor by proposing a minimum wage hike. In reality, the only folks they’re guaranteed to help are pitiful politicians in search of sweet-sounding proposals that might boost their own images.