$15 minimum wage: Good politics, bad economics

$15 minimum wage: Good politics, bad economics

Sanders' support for big minimum wage hikes is helping people "feel the Bern," and Hillary is going along, but the Bern will turn the economy into a bonfire.

Bernie Sanders and Hillary Clinton - Caricatures by Donkey Hotey for Flickr.com CC - https://www.flickr.com/photos/donkeyhotey/

WASHINGTON, April 16, 2016 —In the wake of “fight for $15” rallies and and the last Democratic debate, in which Bernie Sanders pushed for a $15 minimum wage and Hillary Clinton assented, it is clear that the Democratic Party is in thrall to this destructive idea. A national $15 minimum wage would not only harm the people it is supposed to help. It would be disastrous for the economy.

The Democrats prioritize income transfer policies that promote “social justice” and reflect ideals of social responsibility. Republicans prioritize income transfer policies that promote individual responsibility. The two sides often compromise, striking a balance between social and individual responsibility.

For the last seven years, thought, Democrats have dominated the conversation, aided considerably by a president of their own party who favors social programs that provide income to maintain certain standards of living. Because these programs—food stamps, welfare, free health care and the minimum wage—reject standards of behavior and performance, they absolve individuals of any personal responsibility and do more harm than good.

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The conservative (Republican) view is that the government first ensure basic survival income, then promote opportunities to earn more. The liberal (Democratic) view is that the government should ensure more income, something closer to middle-class standards.

In the last seven years, a stagnant economy has stifled opportunity for Americans, especially those who have few or no skills. Obama will be the first president in modern history to serve for eight years without being able to point to even one year of economic growth above 3 percent. In fact, growth during his current term averages less than 2.5 percent per year.

The lack of opportunity has resulted in real income stagnation or decline, particularly for those at the bottom. The administration has framed the issue as an income inequality problem. But the problem is that those at the bottom have simply had fewer opportunities. The intelligent solution is to stimulate economic growth, thus providing more opportunities. Instead, the Obama Administration favors increased wealth transfers, which fails to address the actual issue.

Raising the minimum wage is no more than one type of government-mandated handout. Because it ignores the fact that many entry-lever workers are unable to add $15 per hour of value to an employer’s bottom line, it will end up hurting nearly everyone. A $15 minimum wage will reduce the number of entry-level jobs for unskilled workers, denying them an opportunity in hopes of providing them a handout.

A $15 per hour wage for a full-time employee amounts to more than $31,000 per year. Add the social security tax paid by the employer and the $3,000 fine for not providing health insurance and the minimum cost for a new employee who has absolutely no skills is more than $36,000 per year.

How many employers will pay $36,000 per year for an employee who has no skills? They will quickly find ways to replace workers with capital goods like computers and robots. We will all eventually end up ordering meals from a touchscreen at fast food restaurants.

The unemployment rate for unskilled workers is typically in the 20 percent range. The $15 minimum wage will push that up to 30 percent or more. That seems great for workers who keep their jobs, but it’s a disaster for 10 percent of the unskilled work force who will either lose theirs or will find they’re unable to get one.

There is a ripple effect stemming from this as well. An employee who has worked for a number of years and seen his wage rise from the current minimum—$7.25—to $14 per hour will likely demand an increase in pay, and not just to the new minimum wage. If unskilled workers now earn $15, the experienced worker will reason he should be worth $7 more than that, just as he was before the minimum wage hike. Does he now get paid $22, or does his relative income fall closer to the minimum wage?

The minimum wage also discourages people from seeking additional education or additional training to learn a skill, and that effect could be equally disastrous. At the current minimum wage, an untrained worker earns about $15,000 per year. That low amount will encourage more ambitious minimum wage workers to learn skills in order to earn more money. At $31,000 per year, there is less incentive to learn new skills, assuming that inflation doesn’t eat up the gains. If it doesn’t, we could raise real incomes simply by handing out money, a logical absurdity.

The $15 minimum wage will raise the unemployment rate, the inflation rate—especially in the fast food and discount retail sectors—and slow economic growth. None of that is good for the economy.

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Clinton and Sanders will push for a $15 minimum wage, and Democrats who believe they have a social obligation to pay people more than they are worth because they “need” it will vigorously support them. But if they really wanted to help people mired in poverty, they would promote policies not to transfer wealth, but to grow the economy and provide people with the opportunity to earn more.

By taking this more prudent course, no one would get something for nothing and more people would have more opportunities. That’s the way the American economy is supposed to work.

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