Posted 7/28/15 (Tue)
By Neal S. Shipman
Creating a national $15 minimum wage seems to be the new battle cry from many city, state and national elected officials. These officials seem to believe that by creating a new higher, minimum wage that government can raise everyone out of poverty and foster an improved national economy.
Raising the minimum wage does have its benefits, especially for the lowest wage earners. But the question that has never been answered is, “does raising the minimum wage really accomplish what the government wants - which is to reduce poverty?”
Reality, by looking at the past, seems to indicate that often there is more harm done when the minimum wage is increased.
The last time that the federal minimum wage was increased was as part of the Fair Minimum Wage Act of 2007, which increased the federal minimum wage to $5.85. After that it automatically increased to $6.55 in 2008, before finally landing at $7.25 per hour in 2009. The hope with creating this new federal minimum wage was it would help to reduce poverty.
What happened, as a result of the mandatory wage increase, was some jobs for the low-wage workers were eliminated, which only created fewer job opportunities for young and low skilled workers.
Several national studies following that increase found that while the national jobless rate was increasing from five to 10 percent, the jobless rate for 16 to 19-year-olds increased from 16 percent in 2007 to more than 26 percent in 2009. And studies by the National Bureau of Economic Research and The Heritage Foundation found employment opportunities for young and low skilled workers fell when the minimum wage goes up.
The results of these studies aren’t all that surprising. Businesses that have to follow the minimum wage rates that are set by the federal, state or city government, all have one thing in common - they need to stay profitable in order to hire employees. If payroll costs become too high, they either have to reduce the number of their employees or raise their prices. And oftentimes, raising their prices puts their business at a competitive disadvantage. And if a business closes, all jobs are lost.
But a new wrinkle in the quest to raise the minimum wage to $15 per hour seems to be playing out in Seattle, which was the first American city to impose such a requirement on businesses.
In that city, according to Fox News, one unintended effect is that workers who are now earning the higher wage are asking for fewer hours, so they can remain eligible for low income government benefits like childcare and tax credits.
That’s right. And this bears repeating! There are workers in Seattle, who are now making $15 an hour, who have decided that they want to work less hours to keep their pay the same and never want to give up the other government benefits. That means they never want to move above “poverty” standards.
And that is what happens when the government tries to socially engineer changes by imposing mandatory wages. Businesses lose! The American economy loses! And those people, who want to keep getting their government handouts, find a way to do so.
If government leaders want to reduce poverty, then they need to find ways to grow the economy. Government needs to find ways to force people who are living on welfare and receiving government assistance to work more, not less.
Raising the minimum wage, while it makes for great political news, has shown that it does not reduce poverty. The only way to move people out of poverty is by having a growing economy in which new jobs are being created. And then having a trained workforce ready to fill those jobs.