“Americans should not be subsidizing the richest family in America and Walmart workers should not be living in poverty,” Sanders tweeted last month, castigating the big box retailer for not paying all workers $15 per hour. “Walmart’s greed has got to end,” he added.
Many state already have increased minimum wages, and the “Fight for $15” crowd wants a nationwide increase.
So let’s explain, for the umpteenth time, why this is misguided.
We have lots of data and anecdotes to review, so let’s begin with some scholarly research from Europe.
This paper estimates the long-run impact of youth minimum wages on youth employment by exploiting a large discontinuity in Danish minimum wage rules at age 18 and using monthly payroll records for the Danish population. …On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old.
Another explanation for stagnant wages is increasing market power for a dwindling number of corporations: the fewer corporations there are competing for labor, the more able they will be to negotiate down wages. In the book “The Captured Economy,” Niskanen Center scholar Brink Lindsey and Johns Hopkins professor Steven Teles argue that “regressive regulation”––or regulation supported by established corporate interests in order to drive out competitors––has contributed to this phenomenon. As regressive regulation limits the number of corporations, it means the fewer larger remaining corporations can bid down wages.
The progressive proposal for increasing wages in a labor market in which a few corporations have dominant market power is to raise the minimum wage. Unfortunately, minimum wage increases exacerbate the problem of the concentration of market power for big corporations. According to a Harvard study released this past April, minimum wage increases lead to smaller businesses closing down, hence hurting people trying to start enterprises and advantaging wealthier, more established players. Not to mention that the minimum wage hurts the poorest members of society trying to enter the labor market. Minimum wage hikes are not the way to increase low-income wages, but free marketers need to present their own remedies.
The solution to the high level of market power of a handful of companies is to empower small businesses to enter the market. And government regulation disproportionately harms small businesses: according to a Lafayette University study, the regulatory burden per worker is 28 percent higher for companies with fewer than 500 workers than for companies with more than 500 workers. Specific, targeted reform directed at regulations that have especially high fixed costs and create barriers to entry would go a long way in empowering workers and new entrepreneurs.
Occupational licensing laws are an excellent example of a regulation that depresses the wages of low-income people by imposing high fixed costs, and they have exploded over the past half-century. In 1950, only five percent of jobs were subject to licensing requirements. Now, that figure is closer to 30 percent. According to conservative think tank Goldwater Institute, occupational licensing requirements seriously depress low-income entrepreneurship, hence both holding more people in poverty and preventing the entry of new, small firms…Repealing these regulations would both directly increase the wages of low-income workers while also easing the process for firm entry into the market.
Furthermore, the Dodd-Frank Act is another package of regulations that has seriously weakened small businesses. The burden of the regulatory rules in Dodd-Frank has disproportionately hurt community banks, and while community banks only form 20 percent of all banking in the United States, they are responsible for 50 percent of small business loans. Therefore, as community banks die off––almost 20 percent of them have shuttered since Dodd-Frank’s implementation––would-be small business founders lose access to capital. This loss of access to capital perpetuates the problem of the shrinking number of businesses in the market as a whole. Therefore, repealing Dodd-Frank would enable for more firm entry and a more dynamic labor market, addressing the decline in business formation partially responsible for wage stagnation.
Increased competition in the labor market for workers is a viable solution to slow wage growth that conservatives must champion. Free marketers cannot afford to surrender the issue of wage stagnation to progressives championing more government intervention, and present their own liberty-minded solutions to raise the wages and living standards of low-income workers.
“The results indicate that these regulations, especially minimum wage policy, contribute to higher unemployment rates and constraint formalization in Morocco, especially for youth and women.”
For anyone who still thinks minimum wage laws help people get ahead or climb the economic ladder… first you must actually be able to reach the first rung on the ladder!
Have you ever wondered why there is a Department of Labor? Why isn’t the Department of Commerce enough to represent the interests of everyone in the business world? If something is good for commerce, that usually means businesses are growing and hiring and paying higher wages. Isn’t that also good for workers?
The idea that management and labor are invariably at odds is a Marxist idea. Which is to say, it’s outside mainstream economics. Similarly, the idea that government intervention can help labor in its struggle against management is also contradicted by what mainstream economists know. Labor market regulations that help some workers, often do so at the expense of other workers. More often than not, intervention makes all workers worse off.
While economists are famous for their disagreements (and their incompetent forecasts), there is universal consensus in the profession that demand curves slope downward. That may be meaningless
And this is why it makes no senseto impose minimum wage requirements, or to increase mandated wages where such laws already exist.
If you don’t understand this, just do a thought experiment and imagine what would happen if the minimum wage was $100 per hour. The answer is terrible unemployment, of course, which means it’s a very bad idea.
So why, then, is it okay to throw a “modest” number of people into the unemployment line with a “small” increase in the minimum wage?
The big problem for Republicans is not what they believe. Their problem is that anti-Republican reporters are asking the questions. As Jonah Goldberg complains:
“Why does the Left get to pick which issues are the benchmarks for “science”?
Why can’t the measure of being pro-science be the question of heritability of intelligence? Or the existence of fetal pain? Or the distribution of cognitive abilities among the sexes at the extreme right tail of the bell curve? Or if that’s too upsetting, how about dividing the line between those who are pro- and anti-science along the lines of support for geoengineering? Or — coming soon — the role cosmic rays play in cloud formation? Why not make it about support for nuclear power? Or Yucca Mountain? Why not deride the idiots who oppose genetically modified crops, even when they might prevent blindness in children?’
Economic is the science of incentives. Yet most of the delegates in the national Democratic Convention don’t believe in incentives. They believe if a price is too high (think housing rents), the government can push it down and nothing bad will happen. They believe if a price is too low (think wages), government can push it up and nothing bad will happened. They believe that a plan formed by people at the top will work (think Obamacare) even if everyone at the bottom has a self-interest in defeating it.
This is science denial in spades.