Minimum Wage: Is Job Loss Acceptable?
Finally, some minimum-wage advocates are acknowledging the policy's tradeoffs. New School economics professor David Howell recently asked the Washington Post, "Why shouldn't we in fact accept job loss?" He calls for a "living wage" mandate for some, even if it hurts others.
Is that a good trade? Lawmakers should carefully consider this question before following in the footsteps of California, which recently decided to raise its minimum wage to $15 by 2022, or New York State, which is also aiming for $15 (though its timetable is less certain).
It is young people who are disproportionately on the short end of the minimum-wage tradeoff — and whose interests activists often ignore. How bad is it? Largely because of minimum wages, barely a third of teenagers have taken on summer jobs in recent years — and one-fifth of those who want jobs can't find them — even as the nationwide unemployment rate has dropped below 5 percent.
Whether they know it or not, high minimum wages make it difficult or impossible for many young people to land that first job. They lose opportunities to learn skills, from basic work habits like showing up on time to advanced specialized trade skills that can pay handsomely down the road.
The tradeoffs do not end with higher or prolonged unemployment. Higher minimum wages can force employers to cut back or eliminate on-the-job perks such as annual bonuses, paid vacation and sick leave, and complimentary meals and parking. When these non-wage benefits, which are mostly untaxed, are replaced with wages that are taxed, that often means a tax increase for affected workers — adding insult to injury. And there is some evidence that high minimum wages hurt disabled workers and raise crime rates.
The minimum wage also puts small businesses at a competitive disadvantage. Large companies such as Walmart and Costco can absorb minimum-wage increases fairly easily, while the mom-and-pop competitor down the road might have to cut down staff or even shut its doors as a result of increased costs, a prospect that should dismay progressives.
Howell does have a proposal to mitigate minimum-wage tradeoffs: cash assistance for people who lose their jobs. The concept is similar to Trade Adjustment Assistance, which is intended to help workers who lose their jobs to increased international trade. Of course, both TAA and Howell's minimum-wage assistance also come with tradeoffs.
First, it is difficult to tell whether someone loses a job because of a minimum wage hike, or some other cause, such as changing market conditions. This opens up the possibility of people gaming the system. Second, that assistance is not free. It has to come from somewhere — such as taxes from the workers who get raises from the minimum-wage hike, which makes the increase smaller than advertised.
Layering an additional complicated and fraud-prone government program to fix a problem prompted by a government policy is the wrong idea. It is much simpler — and more ethical — to allow workers and employers to agree to employment their own terms, not whatever terms Howell or other professed experts decide.
Ryan Young is a fellow at the Competitive Enterprise Institute.