End the Minimum Wage

minimum wage

As evidenced by the global political situation over the past decade, bad economic policies make great political ones. The minimum wage is an unfortunate example of that. Simple economic theory says that when you raise the price of a normal good, less of it is demanded. Nowhere is this more true or more ignored than in the context of the labor market. Movements to increase the minimum wage are politically popular, for the apparent assistance they lend to the poorest members of society. Cries of “we can’t live on that” from workers in the food service industry make opposing a minimum wage seem heartless and cruel, and socialist politicians like Bernie Sanders, who have captured the interest of the American public, have adopted these rallying calls into their platforms.

Yet the ugly truth of the minimum wage is that it hurts the very people it claims to help-young, low-income, and minority workers who are quite literally priced out of a job. Low-wage jobs have disappeared in cities that are liberal champions of living wages, such as San Francisco and Seattle. Further movements to increase the minimum wage are taking place all over the country-from Washington D.C.’s new proposal to increase the minimum wage to $15 by 2025, to the Massachusetts legislature’s intent to vote on a $15 wage bill this month. These movements are not just factually incorrect; they are harmful. They cost the most vulnerable members of society valuable skills, employment, and a livelihood. Because of this, the minimum wage should be phased out and eliminated.

To begin with, it is worth understanding the purpose of these entry wage jobs. Politicians often argue that nobody can actually afford to live on a minimum wage, and they are correct. Nobody is actually supposed to live on the wage such a job would provide. Minimum wage jobs are stepping stones onto better-paid opportunities, held by individuals who are not working to support dependents but rather those who are themselves dependents. About half of all minimum wage workers are under the age of 25, and about a quarter of them are between 16 and 19 years old. 64 percent of minimum wage workers are employed part-time, implying that they are teenagers taking up a summer job, full-time students trying to earn some money outside of class, and adults who earn another type of income as well. Moreover, even though 2.7 percent of all hourly paid workers make the federal minimum wage, workers do not tend to stay in the minimum wage bracket for long; over two-thirds of workers earning this minimum receive a higher wage in a year. All this evidence points to the fact that a minimum wage job is a starting point, not a permanent trap. Young, inexperienced workers take on such jobs to learn valuable, real-world skills that they then use to get promoted and receive a higher salary. If such jobs were not available, this transition would not be possible; workers in desperate need of the qualities a minimum wage job provides would never get them, and would never be able to advance to a more fulfilling and beneficial job. To argue the point further, consider that a wage is the price a firm puts on hiring a worker. If the worker is productive below the level of the minimum wage the firm has to pay, the firm will never hire the worker, even though the transaction could be mutually beneficial to both parties if an artificial restriction of price were not imposed on it. Suppose a young woman is looking for a job in the fast food industry, but does not know the industry that well nor possess the skills needed to perform well in it. She can bring $6 of value to a fast food chain, and the fast food chain will profit if it can pay her that $6 or less. But federal guidelines mandate that this young worker be paid $7.25, so the firm no longer finds it profitable to hire the worker, nor does the worker receive employment or experience. Both parties are harmed; all because the government has decided that everyone must be paid at least $7.25.

It is not just this stepping stone experience that the government destroys when it imposes a minimum wage. Numerous studies over the past decade have proven that the imposition of minimum wages destroys low-wage jobs. In 2016, the second phase of Seattle’s Minimum Wage Ordinance was instituted, with the minimum wage rising to $13 from $11 just a few months earlier. A paper from the National Bureau of Economic Research (NBER) found significant negative effects from this phase-in. While hourly wages among minimum wage jobs increased by 3 percent, employment in such jobs decreased by 9 percent; nearly a tenth of these low-skilled jobs disappeared due to the wage hike, decreasing average monthly wages by $125 in 2016. In California, which will become the first state to have a minimum wage of $15 by 2022, another study echoed these negative results. The authors found that a 10 percent increase in the minimum wage resulted in employment losses of 5 percent; by 2022, these employment losses are expected to total 400,000 jobs, mainly in the food, accommodations, and retail industries. That is nearly half a million people who are expected to lose their jobs because of politicians demanding that these same people be paid more. In a state like California, where the inequality in income is already so stark and housing prices are among the highest in the nation, vulnerable workers cannot afford to be laid off at the expense of someone else’s higher wage. The harmful effects of these increases are not limited to the American economy. Our northern neighbor Canada is expected to implement minimum wage hikes over the next few years. The Bank of Canada has forecasted that because of these increases, 60,000 people can expect to lose their jobs. Low-skilled workers with little to no education will suffer in the years ahead, at home and abroad.

Thomas Sowell said it best when he lamented “the real minimum wage is always zero.” Liberal politicians and do-gooders, always interested more in what sounds good than what actually works, will see to it that minimum wages across the country are increased. This will hurt the very people who need help in the first place: the young, for whom minimum wage jobs bring the necessary experience to move on in their careers, and the low-skilled, who unfortunately have no other option but to work in such jobs. Before hundreds of thousands of jobs can be killed, the minimum wage must be eliminated. It is an illogical and hurtful policy dreamed up by people who have no grasp of how a proper market functions. Workers in a free society should have the freedom and opportunity to do what is best for them, without the government harming them. An elimination of the minimum wage is necessary to make this happen.

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Jenny Grimberg

Jenny Grimberg is an economist at a financial firm in NYC. She holds a Masters degree in Applied Economics from Georgetown University, and a degree in finance from NYU. Prior to her current role, Jenny was an economist for the White House, working on infrastructure reform and cryptocurrency regulation. During her time in college, Jenny developed a passion for policy and politics, with libertarian leanings on most political issues. She decided to moved to Washington, D.C. to pursue a graduate degree that would allow her to begin a career in public policy, focusing specifically on monetary policy and financial regulation. She believes that the less government gets involved in the economy and the lives of its citizens, the better for society in the long run. She is also very passionate about the issues of drug liberalization, school choice, and gun control, believing that government has no business dictating how its citizens should live so long as they are not harming anyone else in the process. For fun, Jenny loves to travel whenever she can. One of her dreams is to take a road trip through every state in the United States. So far, she is up to 18 states. Her favorite road trip so far has been along Highway 1 in California. In her free time, Jenny can be found planning her next trip, reading, and visiting the zoo.