Bernienomics turned Clintonomics: A Sympathetic Breakdown of the Flaws of a $15/hour Minimum Wage

A $15/hour national minimum wage is a sympathetic-but-not-quite-proven idea that really doesn’t stand on its own. The goal of a $15/hour minimum wage is to raise incomes and living standards for the poorest; I’m skeptical of that.

Economics

Classical economics says labor is a market; higher prices necessarily leads to lower demand.

But, what is an economic theory without objection? A few studies have shown that states with higher minimum wage rates do not perform more poorly with regard to job growth. I’d point out: the current highest state minimum wage is $10/hour for California and Massachusetts. This is only $2.75/hour more than the federal minimum wage. After adjusting for cost of living and higher incomes, this becomes largely similar to other state minimum wages, and, due to the relative affluence of eastern Massachusetts as well as coastal California, most of these costs can be relayed to customers rather easily.

Cities like San Francisco, Seattle, and New York can afford a $15/hour minimum wage. Adjusted for the cost of living, the wage increase is still viable economically. All cities are capitals of commerce, with some of the wealthiest people in the country, as well as hundreds of thousands of professionals making six-figures. That employment picture starkly contrasts, say, Imperial County, California’s poorest, where per capita income is roughly $17,000 per annum.

When minimum wage is raised to $15/hour, companies will re-optimize their operations to maximize profit, as per usual. While San Francisco, Palo Alto, and San Jose will be able to shoulder the increased costs of labor, it is quite possible Imperial County will not make the cut. And if jobs are lost, it will add insult to injury in California’s poorest county. The same can be said of any comparison between New York’s upstate region, especially the western part of upstate New York, and Manhattan, western Brooklyn or Westchester County.

And if these areas struggle with a $15/hour minimum wage, which we will see, it remains to be seen how a state like Mississippi or Kentucky will react economically, where the minimum wage will literally more than double. In many counties (think the poorer parts of the South and Southwest), a $15/hour minimum wage will be almost equal to the current mean wage. An economic experiment of the sort has never occurred on such a drastic scale, especially considering the highest adjusted US minimum wage was slightly less than $11 in the 1960s (adjusted for inflation).

Likewise, we’re probably facing something of an automation revolution. Companies that can do something automated for less money will. The future will be automated, no doubt. Not to be brash, but if you think for one second that a company has the social interest to hire someone rather than automate it, you’re deluding yourself. A higher minimum wage only serves to incentivize more companies to automate, due to higher labor costs.

Roles of Government and Enterprise

Fundamentally, companies are not there to provide social benefit (sorry, hopefully this wasn’t too shocking). Companies in the free market situation in which we live are there to provide returns to shareholders; many companies also intend to do so in a way that maximizes social benefit or minimizes social destruction. Regardless, there is no fundamental role for a firm rather than making money. However, there is a role for the government to make sure there is a decent standard of living, including basic healthcare, food, and security. By demanding that companies pay a “living wage,” we are passing on the social burden of government to companies; we are demanding that companies fix the failures of government.

Why do we demand that companies pay a living wage when they are not social vehicles while we do not instead pressure the government to provide something like a basic income or increased welfare?

It seems to me that we are attempting to minimize governmental failures to provide a safety net by punishing free enterprise which is, for all intents and purposes, unrelated to the general issue of maintaininig a basic standard of living. Fundamentally, by supporting an increased minimum wage to the point of a living wage, one is advocating that it is, in fact, up to the private sector to dictate societal harmony, while the government serves a passive role.

Politics

Why do Brown, Cuomo, Sanders, and Clinton want to raise the minimum wage at a time when minimum wage earners are already covered by every federal, state, and local program while typical working class and middle class people languish? The other options are too hard to deal with, and this is the easiest option. Increasing the minimum wage:

1. Places blame on companies for the state of poor people, when in reality we are suffering the consequences of two or more centuries of racist society and related policies coupled with generally bad healthcare, trade, and, particularly, education policy.
2. Rallies the liberal and progressive bases upon which all need to be (re)elected (yay, companies are bad; make those evil bourgeoise capitalists pay a living wage!)
3. Distracts both parties from a more sustainable solution to the working/middle class wage crisis, one which could be solved through larger tertiary education enrollment, better trade schools or career-focused high schools, better inner-city education systems, smarter economic policy, further investment in infrastructure, further economic stimuli, as well as stamping out crony capitalism in an effort to sway the economic pendulum away from the wealthiest, many of whom benefit from our trade laws, tax code, as well as antitrust and legal systems.
4. Sets up companies to bear the brunt of its potential failure.

Who knows, maybe the increased income of the poor will create more jobs than those that would be lost, but who wants to gamble on the lives of poor people for political gain? Oh, that’d be Democrats. I suppose that makes them marginally better than Republicans, who just don’t care at all.

“If a company cannot afford to pay a living wage, it should close.” Well, I’ll be the not first to predict that some will close. It’s been half a century of right-wing populism; it’s about time for some ignorance on the left.