A new year brings new laws, and 2015 is no exception. Starting Thursday, governments in 20 states ordered increases in their state’s minimum wages. When combined with New York State’s mandated increase on Wednesday, more than half the states now have a minimum wage higher than the federal $7.25 hourly wage. Few Americans will notice the change, however, as the overwhelming majority of those with jobs earn well above the mandated minimum wage.
Nine states (Arizona, Colorado, Florida, Missouri, Montana, New Jersey, Ohio, Oregon and Washington) have minimum wages indexed to inflation, requiring annual bumps in the legal wage floor. Alaska, Arkansas, Nebraska and South Dakota are boosting their wages as the result of recently enacted ballot initiatives. The other states, each with strong Democrat party traditions, hiked the minimum wage through legislation last year.
The left-wing advocacy group Economic Policy Institute (EcPI) estimates that just over 2 million workers will be affected by mandated higher wages. The Hill reporter Vicki Needham and others in the media inflate this number to over 3 million, by assuming that those already earning above the minimum wage will enjoy a commiserate wage increase. Some part of this assumption perhaps will come true, but even then the boost only impacts around 2 percent of the nation’s labor force.
The average family income of a minimum-wage worker is $53,000 a year. If this doesn’t match the dystopian narrative of minimum wage workers presented by the media, it is for the simple fact that the overwhelming majority of these workers are teens living at home or the 2nd or 3rd earner in a household.
For those very few number of adults struggling to make ends meet on a minimum wage job or trying to raise a family alone, there are often a series of questionable life choices at play. Some two-thirds of adults earning the minimum wage have a high school education or less. For these unfortunate few, an increase in the federal Earned Income Tax Credit would be far more beneficial than a mandated hike in the starting wage.
It is important to remember, especially for reporters such as Needham, that the minimum wage is a starting wage. Two-thirds of minimum wage earners receive a pay increase within the first year on the job. As workers gains skills and experience, they move up the wage ladder. It is a process that the overwhelming majority of us experienced first hand.
The great tragedy of government-mandated wage hikes is that, as the cost of these first, starting, jobs increase there will be fewer of them, like everything else in economics. All sides of the political debate over mandated wage hikes acknowledge that some job loss will result from a forced increase. The debate is rather on the scale of this job loss, rather than whether it exists.
With so few workers earning at or close to the minimum wage, any job loss is likely to be slight. The unintended consequence, though, is that any job loss that does occur will be among the workers with the least skills and education. These, presumably, are the very workers politicians claim they are trying to help.
Union backed groups like EcPI and reporters like Needham tend to argue their own misguided version of trickle-down economics, asserting that the mandated higher wages for those who remain employed will trickle through the economy and boost economic growth. Needham breathlessly repeats EcPI’s claim that the higher wage mandate will add over $800 million to the economy through higher paychecks. These higher paychecks don’t magically appear out of thin air, however. The money is simply redistributed away from business investment or recouped through higher prices. Nothing is “added” to the economy, rather the ledgers are simply moved around.
Centuries ago, the Danish King of England, Canute, famously ordered the tides to stop. The display was meant to show his subjects the limits of government power. It was a very mature dose of humility that is sorely lacking today. Politicians and reporters may feel good to simply order wage hikes, but they can’t repeal the laws of economics any more than Canute could repeal the laws of physics.
Politicians in 20 states received a nice New Year present this week. Unfortunately, workers with the least skills in these states found the first rung on the job ladder a little more out of reach.