Our lecturer-in-chief recently informed the class that “it’s not cool to not know what you’re talking about.” Great. Now if only Mr. Obama would take that message to his comrades on the left advocating a minimum wage of $15.
For these legions, it seems to be an article of faith that public policy is best guided by magical thinking, facts and logic be damned. But, of course the president is marching to the same drummer — just leading from behind.
The propaganda supporting the Fight for $15 — or $12 or, before that, $10.10 — is as duplicitous as it is abundant. The campaign is built on three myths:
1. “It’s a free lunch.”
If any businessperson told you, “I’m gonna double my prices, and everyone will continue to buy exactly the same amount of my product,” you would laugh heartily and/or edge away nervously. We’re all familiar with what economists call the First Law of Demand: Raise hamburger prices, and we will Eat Mor Chikin, even without prompting from cows.
In progressive fantasyland, however, the laws of economics do not apply. According to the Left, we can more than double the cost of entry-level or unskilled labor from $14,500 to $30,000 annually (not even including employer-paid payroll taxes), and no one will lose his or her job. Apparently it would never occur to any employer to substitute cheaper capital (automation? humbug!) for labor. And cost increases will never be passed through to consumers, so we won’t see any reductions in demand that would otherwise provoke layoffs.
How can progressives spout such nonsense? Because they have . . . studies. Labor unions (about whose motives more will be said later) have paid for innumerable “reports” that examine small increases in state or local minimum wages and — surprise! — claim to find no or only trivial job losses.
Some of these papers even made their way into academic journals. The most prominent, based on a carelessly conducted telephone survey of New Jersey fast-food franchises’ employment practices following an increase in that state’s minimum wage in 1992, has been utterly eviscerated by the eminent labor economist Finis Welch.
When David Neumark and William Wascher looked at those franchises’ actual payroll records, they found that New Jersey’s 18.8 percent minimum-wage hike reduced employment at affected establishments by a non-trivial 4.6 percent. Would the 15ers’ proposed 107 percent wage hike have a (proportional) 26 percent negative effect? More? Less?
In reality, no one really knows how much employers would cut labor — because the ridiculous magnitude and coverage of this proposal would put us in uncharted waters. When the non-partisan Congressional Budget Office estimated the employment effects of a $10.10 federal minimum, their best guess was a half-million lost jobs — with the upper range at a full million. There are some truly scary predictions about the carnage that could result from the fight for half again more, but the only thing we can say with certainty is that there will be pink slips, and a lot of them. To which the progressives reply, essentially, “so what?”
2. “No one can live decently at the current minimum wage, so we’ve got to do something.”
This is a clever lie because it’s so plausible. The image of a single mom “playing by the rules,” scrimping to pay rent and feed her child while working full-time for a mere $14,500 a year (at the current federal minimum of $7.25 an hour) tugs at the heartstrings.
But the truth is, we already do a great deal to help her. First, there’s the Earned Income Credit (EIC), a tax credit that is brilliant and effective because it rewards that single mom for her work without risking her job — as we would by inflating how much her employer must pay her relative to her productivity.
The EIC’s value for the working poor varies according to family size and state, but it would mostly evaporate if the 15ers get their way: In my home state of Maryland, our hypothetical mother of one (working at the state minimum of $8.25) increases her after-tax income by $4,930 thanks to federal and state EIC-related refunds. That’s an effective $2.47 per hour raise — without threatening her job. Force her employer to pay $15 an hour, however, and (assuming she’s not laid off) her tax refunds plummet to $864 — while her payroll taxes go up by $1,033. All told, our Maryland mom’s gross raise of $13,500 would raise her after-tax income just $8,401, an effective marginal tax rate of 38 percent.
But wait, there’s more. At the old minimum, mom and child would qualify for the Supplemental Nutritional Assistance Program (SNAP), to the tune of $3,048 per year. At the new minimum, she’d lose $2,928 of that. That’d reduce her annual net gain from the Fight for $15 to just $5,473. If you’re keeping score, that’s an effective tax rate of 59 percent, leaving our Maryland mom with a raise of not $6.75 but just $2.74 per hour.
And we’re still not done. At the old minimum, our mom qualifies for Medicaid; at the new one, she’d qualify for Obamacare subsidies but likely pay an estimated $147 monthly premium. That reduces her net another $1,764. Then there are the possible losses of child-care subsidies and — perhaps the biggest hit of all — Section 8 housing grants, the loss of which would raise our mom’s effective rent 70 percent.
The point here is not that a $15 minimum would make low-skilled workers absolutely worse off — though it is certainly possible that some would be — but that the juice isn’t worth the squeeze. A sizeable number of jobs would be lost, reducing economic opportunities and spreading poverty, and in exchange those who avoid layoffs would improve their standard of living far less than is being advertised.
This fact also puts the lie to the 15ers’ spin that this is “bubble-up economics,” in which greater purchasing power for the working poor will magically stimulate the economy. This ignores the inevitable dis-employment effects, the higher labor costs that reduce incomes for employers, and the high effective tax rates faced by those lucky enough to avoid getting laid off.
In the Earned Income Tax Credit, we have a far more effective way of alleviating poverty than wage controls; ignoring that fact is not only not a virtue, it is destructive and self-defeating.
3. “The $15 minimum wage is a moral imperative.”
When Governor Jerry Brown put California on the $15 tollway to perdition, he admitted that “economically, minimum wages may not make sense” but nevertheless argued that the issue is “a matter of economic justice.”
Wait — what? How can justice be served by something that is so damaging to the working poor — especially when a better way to raise their standard of living (the EIC) is readily available? The most charitable explanation might be that the 15ers assume good results from good intentions, and in our current populist mood we judge intentions by tribal affiliation. Is this policy attempting to help those with whom we identify? Check. Would it hurt those (the evil millionaires and billionaires) we now consider public enemies? Double check.
But the Fight for $15 was not undertaken to actually help the poor. It was, from its initiation in 2012, a devilishly clever plot by the labor cartels — chiefly the Service Employees International Union (SEIU) — to enhance their bargaining power and prop up dwindling membership by pricing rival labor out of the market.
Unions mainly represent more-skilled workers; nationally, members average about $28 per hour (before benefits). Doubling the price of less-skilled workers will naturally divert labor demand toward unions in exactly the same way that higher hamburger prices would induce growth for substitutes such as chicken sandwiches.
Thus, the unions’ generals don’t even believe their own propaganda about negligible job losses to the less skilled. Those losses are necessary collateral damage that advance the interests of their rank and file, whose dues — the tens of millions of dollars funneled to fake “grass roots” outfits and lapdog advocacy groups — are fueling the Fight for $15 campaign.
The best evidence that unions really do understand the destructive effects of wage controls is that they lobby to be exempt from them whenever possible. Diana Furchgott-Roth has documented how in cities from San Francisco to Seattle to Chicago, local minimum-wage requirements “may be waived in a bona fide collective bargaining agreement.”
Could there be anything more corrupt and cynical than devising a policy to handicap your competitors — especially when they are likely to be disproportionately poor — and selling it as morally correct and upright? Yet one union leader justifies these exemptions as giving employers and unions “the option, the freedom” to negotiate “an agreement that works for them both . . . and that is a good thing.”
That sure looks like freedom for thee and not for me, bro. Not cool. Not cool at all.