By Stephen J. K. Walters
Tuesday, May 31, 2016
Our lecturer-in-chief recently informed the class that
“it’s not cool to not know what you’re talking about.” Great. Now if only Mr.
Obama would take that message to his comrades on the left advocating a minimum
wage of $15.
For these legions, it seems to be an article of faith
that public policy is best guided by magical thinking, facts and logic be
damned. But, of course the president is marching to the same drummer — just
leading from behind.
The propaganda supporting the Fight for $15 — or $12 or,
before that, $10.10 — is as duplicitous as it is abundant. The campaign is
built on three myths:
1. “It’s a free
lunch.”
If any businessperson told you, “I’m gonna double my
prices, and everyone will continue to buy exactly the same amount of my
product,” you would laugh heartily and/or edge away nervously. We’re all
familiar with what economists call the First Law of Demand: Raise hamburger
prices, and we will Eat
Mor Chikin, even without prompting from cows.
In progressive fantasyland, however, the laws of
economics do not apply. According to the Left, we can more than double the cost
of entry-level or unskilled labor from $14,500 to $30,000 annually (not even
including employer-paid payroll taxes), and no one will lose his or her job.
Apparently it would never occur to any employer to substitute cheaper capital
(automation? humbug!) for labor. And cost increases will never be passed
through to consumers, so we won’t see any reductions in demand that would
otherwise provoke layoffs.
How can progressives spout such nonsense? Because they
have . . . studies. Labor unions (about whose motives more will be said later)
have paid for innumerable “reports” that examine small increases in state or
local minimum wages and — surprise! — claim to find no or only trivial job
losses.
Some of these papers even made their way into academic
journals. The most prominent, based on a carelessly conducted telephone survey
of New Jersey fast-food franchises’ employment practices following an increase
in that state’s minimum wage in 1992, has been utterly eviscerated by the
eminent labor
economist Finis Welch.
When David
Neumark and William Wascher looked at those franchises’ actual payroll records,
they found that New Jersey’s 18.8 percent minimum-wage hike reduced employment
at affected establishments by a non-trivial 4.6 percent. Would the 15ers’
proposed 107 percent wage hike have a (proportional) 26 percent negative
effect? More? Less?
In reality, no one really knows how much employers would
cut labor — because the ridiculous magnitude and coverage of this proposal
would put us in uncharted waters. When the non-partisan Congressional Budget Office
estimated the employment effects of a $10.10 federal minimum, their best guess
was a half-million lost jobs — with the upper range at a full million. There
are some truly scary predictions about the carnage that could result from the
fight for half again more, but the only thing we can say with certainty is that
there will be pink slips, and a lot of them. To which the progressives reply,
essentially, “so what?”
2. “No one can
live decently at the current minimum wage, so we’ve got to do something.”
This is a clever lie because it’s so plausible. The image
of a single mom “playing by the rules,” scrimping to pay rent and feed her
child while working full-time for a mere $14,500 a year (at the current federal
minimum of $7.25 an hour) tugs at the heartstrings.
But the truth is, we already do a great deal to help her.
First, there’s the Earned Income Credit (EIC), a tax credit that is brilliant
and effective because it rewards that single mom for her work without risking
her job — as we would by inflating how much her employer must pay her relative
to her productivity.
The EIC’s value for the working poor varies according to
family size and state, but it would mostly evaporate if the 15ers get their
way: In my home state of Maryland, our hypothetical mother of one (working at
the state minimum of $8.25) increases her after-tax income by $4,930 thanks to
federal and state EIC-related refunds. That’s an effective $2.47 per hour raise
— without threatening her job. Force her employer to pay $15 an hour, however,
and (assuming she’s not laid off) her tax refunds plummet to $864 — while her
payroll taxes go up by $1,033. All told, our Maryland mom’s gross raise of
$13,500 would raise her after-tax income just $8,401, an effective marginal tax
rate of 38 percent.
But wait, there’s more. At the old minimum, mom and child
would qualify for the Supplemental Nutritional Assistance Program (SNAP), to
the tune of $3,048 per year. At the new minimum, she’d lose $2,928 of that.
That’d reduce her annual net gain from the Fight for $15 to just $5,473. If
you’re keeping score, that’s an effective tax rate of 59 percent, leaving our
Maryland mom with a raise of not $6.75 but just $2.74 per hour.
And we’re still not done. At the old minimum, our mom
qualifies for Medicaid; at the new one, she’d qualify for Obamacare subsidies
but likely pay an estimated $147 monthly premium. That reduces her net another
$1,764. Then there are the possible losses of child-care subsidies and —
perhaps the biggest hit of all — Section 8 housing grants, the loss of which
would raise our mom’s effective rent 70 percent.
The point here is not that a $15 minimum would make
low-skilled workers absolutely worse off — though it is certainly possible that
some would be — but that the juice isn’t worth the squeeze. A sizeable number
of jobs would be lost, reducing economic opportunities and spreading poverty,
and in exchange those who avoid layoffs would improve their standard of living
far less than is being advertised.
This fact also puts the lie to the 15ers’ spin that this
is “bubble-up economics,” in which greater purchasing power for the working
poor will magically stimulate the economy. This ignores the inevitable
dis-employment effects, the higher labor costs that reduce incomes for
employers, and the high effective tax rates faced by those lucky enough to
avoid getting laid off.
In the Earned Income Tax Credit, we have a far more
effective way of alleviating poverty than wage controls; ignoring that fact is
not only not a virtue, it is destructive and self-defeating.
3. “The $15
minimum wage is a moral imperative.”
When Governor Jerry Brown put California on the $15
tollway to perdition, he admitted that “economically, minimum wages may not
make sense” but nevertheless argued that the issue is “a matter of economic
justice.”
Wait — what? How can justice be served by something that
is so damaging to the working poor — especially when a better way to raise
their standard of living (the EIC) is readily available? The most charitable
explanation might be that the 15ers assume good results from good intentions,
and in our current populist mood we judge intentions by tribal affiliation. Is
this policy attempting to help those with whom we identify? Check. Would it
hurt those (the evil millionaires and billionaires) we now consider public
enemies? Double check.
But the Fight for $15 was not undertaken to actually help
the poor. It was, from its initiation in 2012, a devilishly clever plot by the
labor cartels — chiefly the Service Employees International Union (SEIU) — to
enhance their bargaining power and prop up dwindling membership by pricing
rival labor out of the market.
Unions mainly represent more-skilled workers; nationally,
members average about $28 per hour (before benefits). Doubling the price of
less-skilled workers will naturally divert labor demand toward unions in
exactly the same way that higher hamburger prices would induce growth for
substitutes such as chicken sandwiches.
Thus, the unions’ generals don’t even believe their own
propaganda about negligible job losses to the less skilled. Those losses are
necessary collateral damage that advance the interests of their rank and file,
whose dues — the tens of millions of dollars funneled to fake “grass roots”
outfits and lapdog advocacy groups — are fueling the Fight for $15 campaign.
The best evidence that unions really do understand the
destructive effects of wage controls is that they lobby to be exempt from them whenever possible. Diana
Furchgott-Roth has documented how in cities from San Francisco to Seattle
to Chicago, local minimum-wage requirements “may be waived in a bona fide
collective bargaining agreement.”
Could there be anything more corrupt and cynical than
devising a policy to handicap your competitors — especially when they are likely
to be disproportionately poor — and selling it as morally correct and upright?
Yet one
union leader justifies these exemptions as giving employers and unions “the
option, the freedom” to negotiate “an agreement that works for them both . . .
and that is a good thing.”
That sure looks like freedom for thee and not for me,
bro. Not cool. Not cool at all.