Backgrounder: Minimum Wage, Minimum Thought

July 25, 2016

by Craig Ladwig

“We’ve gotta protect our phony baloney jobs, gentlemen.” — Gov. William J. Le Ptomaine (Mel Brooks) in “Blazing Saddles”

A section of your brain becomes inaccessible once you figure out how to make a living spending other people’s money on other people. It is nature’s way of protecting the virtuecrat from mortification.

How else to explain the decision earlier this year by South Bend’s mayor to raise city salaries from $7.25 an hour to $8.20 an hour? Was there a shortage of applicants? Did the city have trouble retaining workers? Additional duties?

No, someone told Mayor Pete Buttigieg that city workers making the minimum wage could not support a family. Now Buttigieg wants it raised to $10 an hour — or even $15, or whatever he might determine a family needs, and for all Indiana workers, private or public. Indeed, last week he called on Hoosiers statewide to “vote with their dollars” by in effect boycotting businesses that don’t pay workers enough to “make a living.”

Buttigieg is wrong — or at least economically self-defeating — on at least seven levels, beginning with his indifference to the fact that the  minimum wage involves only 3 percent of Americans and only temporarily.

1. Stating the obvious that you cannot support a family on an entry-level wage overlooks that we don’t want young people trying to do that. “By the time they realize they are stuck in dead-end jobs, they have new family responsibilities and are unable to pursue other endeavors that may have lower current incomes but promise substantially higher incomes in the future,” warn Philip R.P. Coelho and James E. McClure, economists at Ball State University.

2. John Gaski, a marketing professor at Notre Dame’s Mendoza College of Business, believes that the severity of damage from minimum wage laws raises ethical questions. “Several recent U.S. presidential administrations and other political figures, of both major parties, have been noteworthy for dishonesty, but the minimum wage militants, beyond the inherent policy ethics, have practiced a particularly cynical and pernicious form of it.”

3. Eric Schansberg of Indiana University Southeast argues that the minimum wage is poorly targeted in that it increases wages for all minimum-wage workers, not just those trying to support a family. “Indiana imposes the highest state income taxes on households at the poverty line,” he notes. “State legislators (and mayors) concerned about the working poor should eliminate all taxation on income earned by those in households below the poverty line.”

4. There is a quip by opponents that hits the mark: If the minimum-wage works, why don’t we keep the $35 billion we give away in foreign aid each year and tell the 140 recipient countries to simply raise their wages to match ours? As it is, “America is putting itself at a disadvantage by keeping young and unskilled Americans off the first rung of the career ladder,” argues Diana Furchtgott-Roth for the Jewish Policy Center.

5. David, Neumark, an economist at the University of California, says that increases in the minimum wage for low-skilled groups, regardless of industry, generally decreases employment. It is common sense: If government orders an employer to pay more for the same employees, especially young, low-skilled ones, he will look for ways to do without those employees.

6. Calculating in all these factors, researchers commissioned by the city of Seattle to study the effects of its minimum-wage increase found, according to the Washington Post, that the average increase in total weekly earnings was small even using their preferred method (+$5.54). Using independent methods, total weekly earnings actually dropped (-$5.22).

7. Finally, Vernon Smith, a Nobel Laureate in economics who taught at Purdue, believes that the campaign for a higher minimum wage detracts from real solutions. “Although increasing wages through legislative action may sound like a great idea, poverty is a serious, complex problem that demands a comprehensive and thoughtful solution that targets those Americans actually in need,” he wrote in a letter signed by 500 economists.

Smith and the others suggest that if you want to raise wages you must use education to add skills and improve productivity. In Indiana, that would require freeing schools at the secondary and even college level to fully prepare graduates to step into high-paying trade jobs now unionized or going overseas.

At best, mandated wages are unsustainable cash transfers detached from any of the actual drivers of an economy. At worst, they are merely arbitrary.

If Buttigieg had access to his full brain, he would know this. But then he would have to find honest work.

Craig Ladwig is editor of the quarterly Indiana Policy Review.


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