Among the many ballot issues facing Ohio voters this November is a proposal to enshrine the minimum wage in the state constitution. The so-called “Ohio Fair Wage Amendment,” a.k.a. “Issue Two,” would amend the Ohio constitution to increase the state minimum wage to $6.85 in 2007, and then index the minimum wage to inflation thereafter. Additional provisions in the 1,000-word proposal would impose new record-keeping requirements on employers and facilitate class-action litigation. Ohio already suffers from an unfavorable business climate. Passing Issue Two would make it much worse.
The economic case against a minimum wage increase is well known. Raising the minimum wage slows job growth by increasing the cost of labor. It is a basic economic truth that when the price of something goes up, the amount demanded declines. So, when the government mandates higher wages, unemployment rises as a direct result. Those workers who keep their jobs may earn more, but this comes at the expense of those who are left without jobs.
Despite recent studies purporting to show that increases in the minimum wage can lead to increased employment, surveys of economists continue to demonstrate that this is a minority view. Only one in four economists disagree with the statement that “minimum wages increase unemployment among young and unskilled workers.” A wealth of empirical data and research documents demonstrate that increasing the minimum wage reduces employment, particularly in the retail and small business sectors.
Issue Two proponents argue that the majority of minimum-wage workers are adults (over 20) — and thus deserve a raise. The fact is that most minimum-wage earners are between the ages of 16-24 — and two-thirds only work part-time. People in their early twenties are certainly adults, but they are also more likely to be students or living with their families, and are rarely a household’s primary wage earner. A high-school student delivering pizzas, a 23-year-old graduate student who works in a coffee shop, or and a parent who works part-time to supplement his or her spouse’s income while leaving time for family obligations is more likely to earn the minimum wage than a family’s primary wage earner. Indeed, the average family income of minimum-wage earners is over $60,000.
Those who think minimum-wage increases are a matter of social justice ignore the fact that increasing the minimum wage cuts off the lowest rungs on the ladder of economic opportunity. Forty percent of workers earning the minimum wage were unemployed a year earlier, and the typical minimum wage earner does not earn the minimum for long. Most minimum-wage earners receive a raise within a year of employment. As young workers learn new skills, their productivity rises, increasing their value to their current and other potential employers.
Those backing the minimum-wage increase in Ohio argue that the measure is necessary to address persistent wealth disparities. Such concerns might justify a progressive tax code or other redistributive policies, but they cannot support raising the minimum wage. Empirical data shows that minimum wage hikes do nothing to alter the poverty rate. As recent one study concluded, the wage gains of some families are offset by increased unemployment among low-income families leaving the poverty rate unchanged.
The debate over Issue Two has become about more than economics. This should not surprise, as only one-third of the lengthy amendment directly concerns wage rates. Most of the rest focuses on record-keeping and reporting requirements, and provides for class-action suits against employers suspected of violating the law. This is hardly the sort of language typically adopted in constitutions.
Opponents claim that the provisions of the amendment would threaten worker privacy by making payroll records available to the public. These claims are overstated, if not simply untrue. Yet there may still be reasons for concern.
The proposed amendment would require employers to keep payroll records on all employees for three years after the end of their employment. It further mandates that employers must provide this information “without charge to an employee or person acting on behalf of an employee upon request.” Given that another portion of Issue Two allows any “person acting on behalf of an employee or all similarly situated employees” to file lawsuits against employers for violating any of Issue Two’s provisions, this provision could allow individuals and groups, such as union organizers, to obtain payroll records that would otherwise be private. There is also little question that these provisions will increase the overall cost of complying with the law.
A recent study by the Tax Foundation concluded that Ohio has the second-worst business tax climate of any state, in part because the combined state and local tax burden is among the highest in the nation. As taxes have increased, income growth and job creation have lagged behind the national average. Yet rather than address the fundamental causes of Ohio’s economic decline, some groups would prefer to adopt lengthy constitutional amendments (longer than this article) that will further hamper job creation and economic growth.
Among the forces behind Issue Two are labor unions and groups that could be referred to as the “religious left.” For instance, the National Council of the Churches of Christ USA helped organize the “Let Justice Roll Living Wage Campaign,” that is backing state and federal efforts to increase the minimum wage. Other left-leaning religious groups, such as the United Methodist Church’s Peace with Justice Project, have joined up, working with ACORN and union groups to try and make the minimum wage a central issue in state campaigns. Their hope is that a minimum-wage ballot issue will motivate liberal voters much like the way same-sex marriage referenda drove religious conservatives to the polls in 2004.
Issue Two has performed well in recent polls, so the campaign to adopt an ever-increasing minimum wage in Ohio could well succeed. If so, there will be another obstacle to economic growth in Ohio — and this time it will be constitutional.
– Jonathan H. Adler is professor of law and co-director of the Center for Business Law & Regulation at Case Western Reserve University School of Law in Cleveland, Ohio.