$15/hr minimum wage, 1 of 3

Q: What do you get when you put two economists in a room?
A: Three different opinions.

So naturally, if you ask “Is a $15 minimum wage a good idea?” you’ll get three different opinions:

1. No
2. Yes
3. Both and neither.

The issue is pertinent because the Biden administration is packaging a gradual increase in the minimum wage as part of its COVID relief legislation. It would go up a little every year over five years until it hits the $15 an hour mark. [Source]

Part 1 of 3. It's not a good idea.

Generally speaking, raising the minimum wage has been a cynical and meaningless exercise. It’s a way for Democrats to look like they’re doing something and for Republicans to get concessions in other areas. In 2009, the Obama administration raised the minimum wage to its current $7.25 an hour, but left the tipped employee minimum wage at the 1991 level of $2.13/hour. [Source]

Why? Because raising the minimum wage isn’t about raising wages. It’s about *looking* like you’re doing something.

The biggest problem with minimum wage legislation is that it either:
a.) works as intended only in specific circumstances, or
b.) doesn't work at all.
In areas where wages are *already* higher, it has no impact. A 17 year-old male in Hawaii with no degree and no experience could reasonably expect to make $11 an hour as a McDonald's cashier. [Source: www.payscale.com]

Even in rural Illinois, where the cost of living is lower (and I'm just picking places where I've lived and know the zip code), that same person could reasonably expect to make $9 an hour. Adjusted for inflation, this is roughly on par with what the minimum wage was in 1991 ($5.25/hour), when I was a cashier at McDonald's. The minimum wage is -- practically speaking – designed *not* to real wages.

In areas where it *does* have an impact, there are unintended consequences. An above-market minimum wage creates a kind of "productivity cliff” for employers. If a job isn't worth filling at the minimum wage, it won't get filled at all. To those looking for a first job, or have some undesirable trait (a criminal record, a visible tattoo, or whatever) that cliff may be too high.

This is Thomas Sowell’s argument. In decades past, a low-paying job used to serve as a kind of “stepping stone” toward something better -- toward the top of that "cliff." Eliminating these low wage stepping stones, he argues, has hurt young, black Americans’ job prospects. [Source]

Admittedly, a high minimum wage may be nice for white teenagers with perfect references and records – those who were already on the cusp of being worth that wage. At the same time, however, it would effectively lock out others who don’t have the same “credentials.” And the more the minimum wage infringes on actual market wages, the more “stepping stones” we remove. The risk is that we push disadvantaged young people into de facto permanent unemployment via an insurmountable cliff.

Employers have another option if it's not worth paying someone the $15/hour minimum wage: automation.

We've seen this since before I can remember. Vending machines, ATMs, and -- now -- McDonald's have eliminated cashier jobs through automation. You can see it with the McDonald’s "order it yourself" screens. They still have human cashiers available for people who pay with cash, but you can bet McDonald's is using productivity data to gauge how many humans they can get away with NOT employing.

Given the choice between a high wage for a human or no human at all, many employers would choose the latter. The Congressional Budget Office predicts that a $15 minimum wage would result in the destruction of 1.4 million jobs. [Source]

Given that we’re still in the middle of the COVID19 pandemic, do we really need that many more unemployed?

A $15 minimum wage is a bad idea.