Hiking the minimum wage will hurt those that it intends to help

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The following op-ed was co-authored by Vance Ginn, an economist with the Center for Fiscal Policy at the Texas Public Policy Foundation.


The Texas House of Representatives recently heard nine bills before the Business and Industry Committee that would raise the minimum wage. These bills include raising the state’s mandatory minimum wage from $7.25 an hour to either $10.10 or $15 an hour, and others that authorize local governments for the first time to set their own localized minimum wage.

These bills are well-intentioned, but research and basic economics show that raising the minimum wage is poor policy and most harms those it is intended to help.

A government-mandated minimum is a wage control that destroys economic activity and takes power out of the hands of workers and employers. After long and bitter experiences, most people have accepted the economic reality that price controls harm the economy and make goods and services scarcer. When it comes to the price of labor, however, politics often gets in the way of seeing the fallacy of wage controls.

Whatever the minimum wage rate in statute, in reality, the minimum wage is always zero. If the unemployed cannot find a job, they earn nothing.

When government increases the costs of employing people through rules like the minimum wage, it makes businesses less likely to employ workers. Minimum wages punish unemployed workers who would take a job earning less than the minimum, forcing them into long bouts of unemployment and dependency on family or taxpayers.

Proposals to more than double the minimum wage would leave Texas employers with a troubling set of choices.

Some employers will respond by laying off workers, cutting back hours or eliminating nonwage benefits. Fast-food franchises, for example, are already experimenting with replacing workers with kiosks and other automated replacements, contributing to an upward redistribution of income as higher skilled workers are employed to build and maintain these new technologies.

Others may try to pass the added costs along in the form of higher prices. These higher prices would, in turn, raise the cost of living, partially offsetting any gains to low-wage workers. And some employers will simply be unable to cope and will have to go out of business altogether.

A $15-an-hour minimum wage would be particularly hard on Texas, according to research by R Street. Many of the localities nationwide that have approved high minimum wages have high pre-existing wage rates. This means that the impact from a $15 an hour minimum wage will be felt less in those cities than in areas with lower average wages.

In San Francisco, for example, around one in four workers currently makes less than $15 an hour. By contrast, more than 60 percent of employees in Brownsville, Harlingen, and McAllen make less than $15 an hour.

Research by the Heritage Foundation shows that a $15 an hour minimum wage could cost Texas nearly 1 million full-time jobs, more than any other state.

Instead of resorting to the misdirected policy of a government-mandated minimum wage that doesn’t raise standards of living in Texas, the Legislature should focus on solving the underlying causes of low-paying jobs.

Economically speaking, labor markets are no different from other markets in which individuals voluntarily negotiate prices. Greater worker productivity supports higher wages and more employment. To help low-income workers, Texas needs to make it easier for them to increase their skills and to remove regulatory barriers that discourage employers from hiring.

Specifically, allowing the productive private sector to flourish with as little government influence as possible is a time-tested remedy. This includes eliminating job-killing taxes, like the business franchise tax. Texas should also loosen or abolish occupational licensing restrictions that block job opportunities for low-wage workers.

Raising the minimum wage may seem helpful on its surface, but a deeper look reveals that government control of wages hurts many low-skilled workers and hinders economic progress. Instead, legislators should focus on strengthening the Texas model of limited government that supports prosperity.


Image by a katz

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