The $50 Minimum Wage

I always find it curious that proponents of higher minimum wages don’t aim high enough. The Federal minimum wage is $7.25. As of January 1, California’s minimum wage went to $16 per hour; fast-food workers get $20 per hour.

If they believe this is the way to lift low-wage workers out of poverty, why is the minimum wage so low? Where are the standard bearers of economic justice for the poor? 

For a 40-hour work week, $20 an hour will yield a $41,600 yearly income, before taxes and deductions. Who can live on that? According to California’s Department of Housing, a poor L.A. family of four needs $100,900 a year ($50/hr) just to achieve low-income status. Santa Barbara? Forget it: a family of four needs $118,500 to achieve low-income status ($59/hr). 

I can report that one brave candidate for U.S. Senate has planted the flag for a $50 per hour minimum wage. It wasn’t Adam Schiff or Katie Porter or Steve Garvey. Perhaps they are captives of powerful economic interests who wish to keep poor workers poor.

That brave politician is Democratic Representative Barbara Lee of California’s 12^th Congressional District (Berkeley-Oakland-Alameda-San Leandro). Lee is a standout Progressive politician. This 77-year-old grandmother has aligned herself with just about every Progressive legislative proposal since arriving in Congress in 1998. Her rise to power in the Democratic Party from very humble beginnings is impressive, attesting to her unshakeable Progressive beliefs.

Unfortunately for Rep. Lee, her proposal for a $50 minimum wage will cause mass unemployment. 

It would seem obvious that a $50 minimum wage would fail to cure poverty. If a business isn’t permitted to pay anyone less than $50 per hour and their business structure is based on lower wages to remain profitable, then the outcome would be failure. Thus unemployment. 

I’m always asked: well, if everyone has to pay $50, wouldn’t prices go up in unison, thus all businesses would be in the same boat. Well, yes, but that’s not how things work. Every business has a different operating and profit structure. Take fast-food restaurants for example. Maybe McDonald’s would survive because it could afford to replace workers with automated ordering kiosks and burger flippers. Unfortunately, Tammy Jo’s Burger Barn wouldn’t be able to afford that and would have to shut her doors. For both, the result is unemployment.

The impact of high minimum wages in states like California, New York, Oregon, and Washington has already caused restaurants to change menus to less expensive items, increase prices, cut back employee hours, and reduce staff. Pizza Hut recently announced they would lay off 1,200 delivery drivers in Southern California. Another survey revealed that patrons were becoming increasingly resistant to higher prices and have cut back on dining out. It’s just the start of layoffs.

Which workers do minimum wages hurt the most?

A recent study published by the National Bureau of Economic Research (NBER Working Paper 28388), after reviewing the extensive literature on minimum wage rates and employment, concluded that low-skilled workers were harmed the most because of lost job opportunities. In other words, those that minimum wages were supposed to help were the ones most denied job opportunities.

The Congressional Budget Office (CBO) analyzed a bill that would double the federal minimum wage to $15 by 2025, and concluded “Employment would be reduced by 1.4 million workers, or 0.9 percent…” Those would be low-skilled workers.

Here’s the thing: in our competitive free market system, prices and wages are set by the market. The “market” is shorthand for a complex decentralized voluntary process based on the economic interaction of millions of people buying and selling things. Since the purpose of the economy is to satisfy consumers, ultimately it is we consumers who set the price of labor based on what we are willing to pay for a product. By setting prices and wages arbitrarily, politicians believe they have knowledge superior to the millions of us who participate in the marketplace. Experience tells us that they don’t. 

Progressives like Lee believe that they can just pass laws and that will improve the lot of poor people. Yet politicians have spent trillions to fight poverty ever since Lyndon Johnson’s War on Poverty and the poverty rate has not changed over the past 60 years (avg. 12%).

If history tells us anything, it is that you can’t cure poverty by forcing businesses to fork over more money to workers. It is, however, an excellent way to create more poverty. The way to help poor people is to let businesses create jobs that allow low-skill workers to learn and demonstrate work proficiency and move ahead in life.