$15.00/Hour
One of the signature policy goals of the socialist faction of the Democratic party is a national minimum wage of $15 per hour. It is a bad idea. The policy will not produce the intended outcome. It is a wave of emotion that will encounter a stout seawall of economic reality.
Numerous economists have tied themselves in intellectual pretzels trying to demonstrate that the law of supply and demand does not apply to labor markets. The facts won’t bend to suit their intellectual craving. An increase in the minimum wage, especially a substantial raise, will lead to less hiring of workers with marginal skills, including young people trying to enter the work force. Almost all employers of minimum wage employees are low margin businesses. They simply do not have a magic tree behind the shop on which money grows. They will respond to mandated wage increases by hiring fewer and more productive workers at the higher wage, or substituting some form of automation. In the event that pricing power exists, they will raise prices.
In a closed system, like the American auto industry in the 50's, 60's and 70’s, wage increases unrelated to productivity can be forced. The UAW did that. The three auto makers caved in repeatedly, and raised prices in concert and in tandem to pay for the added cost. As long as they had no competition, it worked. The government can do the same thing with a high minimum wage, which can force employers to raise the price of their product. That’s called inflation. The problem for the employee is that his/her new and higher wage ultimately won’t buy any more goods and services than the old wage bought. What’s worse, inflation has all kinds of deleterious effects on the overall economy.
There is a short term fix. If, as a society and electorate, we decide that lower wage employees need more money in the name of social justice, income equality, etc., we can tax ourselves and subsidize their wages. That would be infinitely more effective than trying to cheap it out by passing the duty along to employers. The Earned Income Tax Credit is the appropriate vehicle. It needs to be streamlined and purged of fraudulent use, but that vehicle will get the job done.
There is a more comprehensive solution that we should also pursue. Productivity! Productivity is THE ONLY vehicle that creates wealth, instead of pushing it from one person to another. We need to focus on the size of the pie instead of arguing about the size of the slices.
First, a basic reality needs to be faced. Any employer making a hiring decision must believe that the new employee will, by dint of his/her work, produce more revenue than the cost of wages and benefits to be paid. Any employer who does not adhere to that standard will soon not be an employer. If an employee is empowered to produce more, he/she can be paid more.
We need to push research and training. The research will generate new tools and the training will enable tomorrow’s workers to use the tools. President Obama tried to put the private sector post-secondary education business out of business. He had some good reasons for doing so, but the effort was misdirected. The private sector will always respond to incentives more rapidly and nimbly than the public sector. That’s what the profit motive and the specter of bankruptcy are all about. The appropriate response is to properly incentivize private training by accreditation and rankings, to identify those programs that have good instructors, good relevance to actual working conditions, and a good record of graduate hires. Access to federal student loans is an obvious and effective club to facilitate this process.
There is no doubt that the socialist approach can produce equality. The problem is that we will all be equally poor. It would be much better to attack inequality by improving compensation paid to the working poor that was produced in an economically sound fashion.
