Bernie Sanders proposes we increase the federal minimum hourly wage from $7.25 to $15.00. A professed socialist, Sanders feels doubling our current “starvation wage” would aid “struggling workers.”
Is he right? Let’s examine both arguments.
Argument #1: Entry-level workers earn a “starvation wage”
Thankfully, in 2015, most entry-level workers received some form of non-hourly bonus pay, tips, or overtime. Each month pet shampooers take home $1,594, amusement park attendants $1,663, and farm workers $1,670. All earn more than $19,000 per annum. (Houston Chronicle).
People of good conscience agree it’s tough to live on such a limited budget. We feel compassion when fellow Americans must dedicate 40% of each paycheck to rent and utilities. Nevertheless, a look at recent history keeps the situation in context. In 1989, the minimum wage was $3.35 per hour. Entry-level workers earned less than $7,000 per year – or $13,500 in today’s dollars. If $19,000 is really a “starvation wage,” how did anyone survive the 80s?
Today’s minimum wage and entry-level workers do struggle, but they struggle to afford Netflix, video games, jewelry, Nike shoes, and cable TV. These workers’ standard of living differs radically from the portraits of deprivation that progressive activists peddle. In 2005, the typical minimum-wage-earning household owned a car and enjoyed air conditioning. Today, the average entry-level worker has at least one color television, subscribes to cable or satellite TV, and owns a smartphone. The majority of poor households have an Xbox or PlayStation; their kitchens contain refrigerators, ovens, stoves, and microwaves. Most own washing machines (83%), clothes dryers (79%), and ceiling fans (70%). Low-income Americans are not starving; to the contrary, most are overweight. Wages are inversely related to obesity– meaning low-wage workers exhibit higher body-mass index (BMI) and greater incidence of corpulence and Type 2 Diabetes. (Kim & Leigh, 2010). To find widespread starvation, look to socialist Venezuela.
Argument #2: Doubling the minimum wage helps poor workers
Doubling the minimum wage will destroy millions of entry-level jobs, tempt Americans to drop out of school, and exacerbate the culture of dependency. Mr. Sanders’ idea will harm many more poor workers than it will help.
The Law of Supply and Demand says increasing the minimum wage nearly always eliminates jobs. Studying Economics at Harvard, I learned: when a wage floor is above market equilibrium, the quantity of labor supplied exceeds the quantity demanded. This creates unemployment. To quote Professor Mankiw, “When a minimum wage law forces labor prices above the level where supply and demand balance, it creates a surplus that disproportionately impacts the least skilled and least experienced members of the labor force.” Every first year Econ student knows “too many workers chasing too few jobs” yields an unemployment crisis. While increasing the minimum wage raises the income of those workers who keep their jobs, it slashes the income of men and women who lose or cannot find jobs, with the greatest burden falling on low-skilled workers.
When the government increases labor costs, some firms become unprofitable, shrink, or close. Unscrupulous outfits move jobs offshore or hire undocumented immigrants paid less than the legal minimum. The number of jobs destroyed depends on the magnitude of the wage increase: a small rise eliminates just a few jobs, a larger increase kills millions. The CBO asserts a $10 minimum wage would shrink our workforce by 500,000 jobs. A $12 minimum would eliminate 1.3 million. The number destroyed by a 105% wage increase would be colossal – probably more than 3.4 million! Even the liberal Washington Post admits, “a $15 minimum —more than double the current federal level — would likely throw many, many people out of work.”
In addition to depressing the quantity of labor demanded, wage hikes increase the quantity supplied. If we double the minimum wage, many high school and college students will quit school to pursue $15/ hour employment. These dropouts tend to displace low-skilled workers, who often become “permanently unemployed.”
For argument’s sake, let’s assume doubling the minimum wage won’t destroy millions of jobs. Even in that fantasy world, Sanders’ plan can’t produce the effect he imagines. Less than 35% of minimum-wage earners support families living below the poverty line; more are middle- and upper-class teens working part time. While these kids would love to see their wages double, it will not help them escape poverty or avoid starvation.
Americans without marketable skills benefit when companies can hire them cheaply and train them. Their experience and skill level grows, opening the door to more lucrative jobs. If companies must pay $15 per hour, few will hire untrained workers.
Simply put, we cannot afford to surrender 3.4 million jobs. The number of Americans “not in the labor force” has already surpassed record levels. Adding millions more to the welfare rolls weakens our nation, and the consequences for low-skilled workers are catastrophic. The evidence is clear: when we lose jobs, we lose hope. A man who’s employed, even at minimum wage, has responsibilities. He has dignity. As a Wal-Mart corporate executive, I met several store managers who started as minimum-wage workers and rose up through the ranks. A woman with an entry-level job can work hard, show initiative, and be promoted. A man earning minimum wage today can get a raise tomorrow. But people on welfare will never be promoted. Tragically, millions of Americans have become “unemployable” – having sat out of the workforce for so long, their skills are obsolete. Many laid off workers wreck their futures by making bad lifestyle choices. All too often, a man with no job responsibilities wastes his life in drugs and drink. Unable to secure legitimate income, some resort to illegal channels. Double the minimum wage and millions will fall idle, despair, and succumb to the temptations of substance abuse and crime (CNN Money, 2013). As Princeton economics professor Alan Krueger, a progressive democrat, has warned: “the push for a nationwide $15 minimum wage strikes me as a risk not worth taking.”
Doubling the minimum wage is a terrible, dangerous idea. Let’s create good jobs instead.
Submitted by Catherine O’Gorman Barranco
A.B. (Economics, Harvard), M.Phil (Economics, Oxford)