Economists call this the Law of Demand. People buy more goods or services at lower prices than high ones. Almost everyone experiences this law daily. In most circumstances, no one disputes this.
But not when it comes to the minimum wage.
The Left has decided the government should raise minimum starting wages to $15 an hour. California and New York have passed legislation requiring exactly this. So have many cities across the country, including Washington D.C. The Democratic party platform now officially calls for a $15 minimum.
Senator Bernie Sanders (I., Vt.) has proposed raising the minimum wage to $15 by 2021. At that level, it would cover one out of every three workers. “Fight for 15” supporters contend this would affect employment little. They argue — seriously — that the government can double starting wages and businesses will still hire the same number of workers.
It would be wonderful if the economy worked this way. The government could simply legislate prosperity. $50 an hour jobs for everyone! But the laws of economics say otherwise. Like everyone else, business owners buy less when prices rise. When the price of labor goes up, businesses hire less of it
Economists have extensively studied how sensitive employers are to higher wages. These studies find that, for less-skilled workers, a 10 percent wage increase reduces employment about 7 percent. This research implies that California’s $15 minimum will cost the Golden State about 900,000 jobs. Senator Sanders’s federal increase would cost another 7 million jobs on top of that.
Sad evidence of this comes from American Samoa. Congress tied the island territory to the federal minimum wage in 2007. But Samoan wages are much lower than in the continental U.S.; the federal rate works out to about $20 on the mainland. Did employers ignore these higher costs? Did these raises bring prosperity?
Unfortunately, no. “We are watching our economy burn down. . . . Our job market is being torched,” the territory’s liberal governor explained to Congress. Forcibly super-sizing starting wags caused Samoan businesses to eliminate jobs or shut down.
The government can ignore the law of demand, but it can’t break it. Raising minimum starting wages to $15 will cost millions of jobs.