Labor Day Confidential: The Misguided Logic Behind Minimum-Wage Hikes

On Monday, Los
Angeles Mayor Eric Garcetti will
announce a proposal to jack his city’s minimum wage
from $9.00 all the way up to $13.25 over three years. That puts him
ahead of President Obama, who has called for
goosing the federal minimum wage from $7.25 to
$10.10.

That’s the opening of a new Time column by me.

Hikes in the minimum wage are routinely sold as a quick
and easy way to increase the income of the working poor, but it’s
actually a really rotten way to do that. That’s partly because so
few people earn the minimum wage (only 3 percent of all workers)
and they rarely earn it for very long (most min wage workers earn
more after a year on the job). And then there’s the simple fact
that people earning the minimum wage aren’t necessarily poor (in
fact, a sizable chunk belong to households making north of
$100,000). As economist and Reason contributor David Henderson
has noted, a study of
the effects of minimum-wage hikes between 2003 and 2007 found no
evidence that the increases “lowered state poverty
rates.”

If you are interested in using government intervention to raise
the income of poor people, the most-direct way is to give them
money. That goes directly to their bottom lines and doesn’t distort
labor markets or make low-skilled employees more expensive. More
from my Time column:

University of California sociologist
Lane Kenworthy, a progressive who has called for a more generous
social safety net, argues that
virtually all increases in income for poor families in the U.S. and
other wealthy countries since the late 1970s have been a function
of “increases in net government transfers — transfers received
minus taxes paid.” That’s partly because workers in poor households
often have “psychological, cognitive, or physical conditions that
limit their earnings capability” and partly because today’s
“companies have more options for replacing workers, whether with
machines or with low-cost laborers abroad.”

To be sure, arguing that you want to increase direct aid to poor
families doesn’t give a politician the same sort of photo-op as
standing with a bunch of union leaders on Labor Day and
speechifying about the urgent need to make sure an honest day’s
work is rewarded with a living wage.

But making just such a case could have the benefit of actually
helping poor people in the here and now. Certainly a savvy
politician could sell that to voters who know the value of hard
work — and the limits of economic intervention.

Whole thing here.

Watch “What We Saw at NYC’s Fast-Food Strike,” from December
2013: