A high minimum wage is magical thinking

Last updated on: March 31, 2016 at 11:15 am by Jane the Actuary

A high minimum wage is magical thinking 2016-03-31T11:15:56-06:00 Jane the Actuary

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Really, it is.

Let’s start with the LA Times reporting on the agreement to hike the minimum wage in California to $15/hour in 2022.

The governor’s plan, crafted through weeks of private negotiations among a small group of lawmakers and labor officials, increases the current $10 statewide minimum wage by 50 cents on Jan. 1 to $10.50 an hour. From there, it would rise to $11 in 2018 and subsequent dollar-a-year increases ending at $15 on Jan. 1, 2022.

Senate President Pro Tem Kevin de León (D-Los Angeles) said 5.6 million people, or one in three California workers, would get a raise. . . .

The agreement allows for a temporary pause in the first few years of boosted salaries if California’s unemployment rate rises or if a deficit is projected in future state budgets.

One of the commenters linked to a page at the Department of Labor, titled “Minimum Wage Mythbusters,” which asserts that minimum wage hikes will have nothing but positive impacts.* Here’s a key paragraph:

Myth: Increasing the minimum wage will cause people to lose their jobs.

Not true: In a letter to President Obama and congressional leaders urging a minimum wage increase, more than 600 economists, including 7 Nobel Prize winners wrote, “In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”

And here’s that letter: “Over 600 Economists Sign Letter In Support of $10.10 Minimum Wage,” at the Economic Policy Institute site. This is a letter, published in 2014, in support of an increase, by 2016, to $10.10, with no details, no evidence. This is not “proof” that larger minimum wages will have beneficial impacts; indeed, the research thus far is mixed and muddled by the fact that states and cities which hike their wages are generally those with stronger economies and higher wages to start with, so that, when there are seemingly no ill effects, there is no real proof to be found here. It’s an assertion of authority and expertise, nothing else.

Now, I am not going to dig up the various studies to be found, and address them one by one. But the notion that a minimum wage hike is a “free lunch”? Even without having access to those studies and research models, on the face of it, it’s magical thinking.

The claim is that the government, by this single action of decreeing a higher minimum wage, can trigger a chain of beneficial impacts: low-wage workers no longer need to use food stamps, they spend their earnings in ways that grow the economy, and everyone’s better off.

Now, I could type up a lengthy blog post about the impact of a high minimum wage on youth (un)employment, inflation, job loss in general, and the impossibility of trying to set a minimum wage at a level at which a single breadwinner can support a family of — what, 3, 4, 5, or more? I could link to articles such as the recent Forbes article (itself a link from Real Clear Politics) chronicling the impact of a high minimum wage in Greece. But even without such research, the notion that the government can, by this simple mandate, beneficially transform the economy and society? It defies all reason. We mock the fact that Trump makes pronouncements of things he’ll do, by fiat, with a statement of “it’ll be great.” But the blind acceptance that a $15 minimum wage will work as promised is magical thinking as well.

*A side note: I was surprised to see this direct advocacy on the Department of Labor website, and especially one that, really, looks pretty unprofessional. I’d get chided if I sent something out to a client that looked like this. But it seems to me that the term “administration” is no longer appropriate, or even “executive branch” – to the extent that they do far more than administer, or execute, laws passed by Congress.

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