The Fight-for-$15 Fantasy

by Oren Cass

Minimum-wage silly season bursts into full bloom tonight, when the DNC features a “Fight for $15” advocate from Michigan. This follows from the party’s platform statement that “the current minimum wage is a starvation wage and must be increased to a living wage” and its call to “raise the federal minimum wage to $15 an hour over time and index it.” Perhaps pundits were too busy smirking at the GOP’s mention of pornography as a public health crisis to notice, but this is a bizarre and dangerous policy position for a national party to adopt.

As I explain in a short Manhattan Institute paper, even left-of-center minimum wage advocates (e.g., EPI, Brookings) have generally acknowledged the importance of setting a minimum wage with reference to a labor market’s overall wage structure and its median wage in particular. If the minimum gets too close to the median, too large a swath of the labor market sees too substantial a distortion. Targeting a minimum to half the median has been cited as a useful rule of a thumb; based on international benchmarks, EPI proposed aiming for 0.54.

Complaints about the U.S. minimum typically focus on just the federal level, and by that standard we do indeed lag other developed, free-market economies—compare our minimum-to-median ratio of 0.41 ($7.25/hr vs. $17.40/hr) to the 0.46 average for Japan, Korea, Canada, United Kingdom, Netherlands, and Australia. But to account for the size and diversity of our national labor market, we allow state local governments to set higher minimums and they have taken up that offer—for instance, the 13 states with the highest median wages have all set minimums at least $1 above the federal minimum. Taking into account the prevailing minimum wage in each local market, the U.S. minimum-to-median ratio is actually 0.47, slightly above peers.

Or take Michigan, from whence tonight’s Fight-for-$15 advocate hails. The 2015 median wage in Michigan was $17.01 and the state’s minimum wage is $8.50—the ratio is 0.500.

Just two years ago, University of Massachusetts professor Arindrajat Dube wrote for the Brookings Institution that: “No one expects that the minimum wage should be set equal to the median wage.” Now, for the 11 million jobs located in regions with a median wage below $15, that is the official stance of the Democratic Party.

Of course, in most years Americans might count on the conservative, free-market candidate to provide a counterpoint to the argument that: “This is one of the richest countries in the world. I think the $15 an hour should be a no-brainer. It’ll help us have a livable lifestyle.” This year the GOP has offered up Donald Trump. As Ramesh noted at the time, Trump made headlines on Tuesday night for arbitrarily endorsing a $10 federal minimum. But the full exchange bears review [segment begins at 1:45].

Trump actually began by asserting a thoughtful and sensible position:

Well let me give you a concept, because I think it’s a good concept. You go with the states. Let the states make a determination. Because if you take New York it’s very expensive to live in New York and they need more than 7, 8, 9 dollars. So you go with the states.

Unfortunately, the withering counter from O’Reilly that “states have the authority now to do that” and “there has to be federal minimum wage” was too much for Trump. At 2:12 in the clip he says “there doesn’t have to be” a federal minimum. At 2:14 he “would leave it.” At 2:15 he “would raise it somewhat.” At 2:18 he offers the gratuitous insult that “it’s not very Republican to say, but you need to help people.” By 2:22 he endorses a $10 federal minimum.

Note that he was not unprepared, caught in a lie, or defending the indefensible. He had plainly been briefed and adopted a workable position, but he still could not maintain it or even discuss it coherently. Such a deficiency cannot be addressed by “surrounding him with good people”—rather, it provides a concrete example of how indispensable a rational and reliable principal is to management and just how dysfunctional a Trump-led government could become.

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