The Corner

Our Minimum-Wage Circus

With the release of the Congressional Budget Office’s report on the effects of the latest proposal to raise the federal minimum wage, we see confirmation that mandated minimum wages are, at best, a clumsy way of trying to help those in need.

Leaving aside the fact that the CBO estimates a net loss of jobs would result from a gradual increase to $10.10 an hour by July 2016, one of the report’s most significant claims was that just 19 percent of the wage increases would be received by Americans living below the poverty line. That’s why this proposal is estimated to lift out of poverty a mere 2 percent of the total number of people then projected to be living in poverty. Indeed, a far higher percentage of the increase would go to people already comfortably above the poverty line.

Is that just?

Given the minimal (pardon the pun) effects of mandated minimum wages upon poverty, one must ask why some people invest so much intellectual energy and political capital in a policy that tends to benefit, for example, teenagers and young people from comfortable backgrounds who won’t be staying in minimum-wage jobs for very long.

In part it’s the top-down approach at work. Legislating minimum wages gives us the illusion that legislators and governments can flip a switch and make things better. Legislated minimum wages, however, aren’t immune from the workings of supply and demand.

Whether one likes it or not, employers who want their company to survive (let alone prosper) do have to consider the effects of mandated minimum wage-increases on their business’s ability to make a profit (and thereby continue employing people). And that sometimes results in a freezing or even a reduction of staff numbers in particular industries. A well-intentioned flipping of the switch, it turns out, can make matters worse for some of the very people one is trying to help.

But another aspect that’s not often considered is how policies emanating from other government institutions undermine the impact of mandated minimum wages. If, for instance, a central bank continues to follow loose monetary policy (as an ultimately ineffective way of trying to compensate for the failure of governments and legislatures to undertake the serious economic reforms that sustain growth over the long term), then the declining purchasing power of a given currency can nullify any beneficial effect of a minimum-wage increase, not to mention the gains of wage rises in general. A 3 percent decline in a currency’s purchasing power over the year, for example, more than halves the real benefits of a 5 percent wage increase in the same year.

Addressing this problem in a systematic manner would logically imply some rethinking of, among other things, monetary policy. Instead we find that minimum-wage increases are often justified by the erosion of the real value of wages. Well, that’s one way of making up some of the loss. Yet it doesn’t address one of the core reasons for the erosion. Moreover in light of continuing erosion, any benefit of the minimum-wage increase is only fleeting.

Put another way, proposals to raise minimum wages can often be a way of avoiding addressing some of the deeper problems that (1) help to keep many people just above or just below the poverty line on an economic tread-mill, and (2) leaves them with the (often accurate) sense that they just aren’t getting ahead.

Surely we can do better than that.

Samuel Gregg is Director of Research at the Acton Institute and author of Becoming Europe.

Samuel GreggMr. Gregg is the research director of the Acton Institute.

Most Popular

U.S.

First, Restore Order

Doing evil in the service of a just cause does not change either side of the moral equation: Evil remains evil, and the just cause remains just — neither consideration cancels out the other or transmutes it. With riots and violence convulsing American cities after the horrifying death of George Floyd at the ... Read More
U.S.

First, Restore Order

Doing evil in the service of a just cause does not change either side of the moral equation: Evil remains evil, and the just cause remains just — neither consideration cancels out the other or transmutes it. With riots and violence convulsing American cities after the horrifying death of George Floyd at the ... Read More
Politics & Policy

Is It Revolution?

I knew I was tempting fate a week ago when I said that the coming nomination of Joe Biden and the COVID-19 pandemic had put America’s politics on chill during this election year. Little did I know that days later we’d be making analogies to 1968. The killing of George Floyd by a Minneapolis policeman moved ... Read More
Politics & Policy

Is It Revolution?

I knew I was tempting fate a week ago when I said that the coming nomination of Joe Biden and the COVID-19 pandemic had put America’s politics on chill during this election year. Little did I know that days later we’d be making analogies to 1968. The killing of George Floyd by a Minneapolis policeman moved ... Read More
Elections

Trump in Trouble

President Trump was disappointed. Bad weather on Wednesday forced a delay in SpaceX's planned launch of the Dragon spacecraft, robbing the president of a prized photo opportunity. He plans to attend the next launch, scheduled for May 30 at 3:22 p.m. EDT, but the spoiled visit to Florida punctuated another week of ... Read More
Elections

Trump in Trouble

President Trump was disappointed. Bad weather on Wednesday forced a delay in SpaceX's planned launch of the Dragon spacecraft, robbing the president of a prized photo opportunity. He plans to attend the next launch, scheduled for May 30 at 3:22 p.m. EDT, but the spoiled visit to Florida punctuated another week of ... Read More
PC Culture

For Looters, Looting Is Fun

One important thing to realize about looting is that it's usually enjoyable for those engaged in it, who exult in the momentary suspension of any rules. Just a couple of examples from the last couple of days (language ... Read More
PC Culture

For Looters, Looting Is Fun

One important thing to realize about looting is that it's usually enjoyable for those engaged in it, who exult in the momentary suspension of any rules. Just a couple of examples from the last couple of days (language ... Read More
Politics & Policy

No, Martin Luther King Was Not Pro-Riot

Among the more contemptible rhetorical tricks used this past weekend was the hijacking of Martin Luther King Jr. to enlist him in the cause of rioting. Celebrities, activists, leading journalistic institutions, and even the Martin Luther King Jr. Center itself are participating in a misinformation campaign by ... Read More
Politics & Policy

No, Martin Luther King Was Not Pro-Riot

Among the more contemptible rhetorical tricks used this past weekend was the hijacking of Martin Luther King Jr. to enlist him in the cause of rioting. Celebrities, activists, leading journalistic institutions, and even the Martin Luther King Jr. Center itself are participating in a misinformation campaign by ... Read More