The campaign for a
$15 minimum wage has been in and out of the news over the last few months. It
will almost certainly be back in the news again before very long. What follows
is a brief analysis of the consequences of enacting such a minimum wage, one
which is far above the prevailing market wages of millions of workers.
The efforts underway by the Service Employees International
Union, and its political and media allies, to raise the minimum wage from $7.25
to $15 per hour would, if successful, cause major unemployment among
low-skilled workers, who are the prospective alleged beneficiaries of those
efforts.
The reason is not only the fact that higher wages serve
to raise costs of production and thus prices, which in turn serves to reduce physical
sales volume and thus the number of workers needed. There is also another,
equally, if not more important reason in this case, a reason which is only very
inadequately indicated by reference to the substitution of machinery or
automation for the direct labor of workers when wages are increased.
This is the fact that a low wage constitutes a
competitive advantage for less capable workers that serves to protect them from
competition from more capable workers. A wage of $7.25 per hour for fast-food workers,
for example, serves to protect those workers from competition for their jobs
from workers able to earn $8-$15 per hour in other lines of work. The workers
able to earn these higher wage rates are not interested in seeking employment
at the lower wage rates of the fast-food workers.
But if the wage of the fast-food workers, and all other
workers presently earning less than $15 per hour, is raised to $15 per hour, then
these more capable workers can now earn as much as fast-food workers as they
can in any of the occupations in which they had been working up to now .
Moreover, the widespread rise in wage rates to $15 per
hour will cause unemployment in all of the occupations affected. The unemployed
clerks, telemarketers, factory workers, and whoever, who otherwise would have
earned between $8 and $15 per hour, will have no reason not to apply for work
in fast food, which will now pay as much as any other occupation that is open
to them. And since those workers are more capable, it is overwhelmingly likely
that to the extent that they do seek employment as fast-food workers, they will
be preferred over the low-skilled workers who presently work in fast-food
establishments. Thus, the rise in the wage of the fast-food workers will serve
as an invitation to the competition of large numbers of workers who do not
presently think of working as fast-food workers and who, being better
qualified, will almost certainly take away their jobs.
Between less employment overall in the least-skilled
lines of work such as fast food, and the incentive created for vastly increased
competition for employment in those lines coming from more qualified workers,
the effect could well be to close those lines altogether to the employment of
workers at the low end of skill and ability. That, of course, would deprive these
people of the opportunity to acquire skills and abilities from work experience
that otherwise would have enabled them to become capable of performing more
demanding jobs later on.
What the demand for a $15 an hour minimum wage represents
is a case of low-skilled workers being led to reach for a high-wage “bird in
the bush,” so to speak. Unfortunately, at the high wage, there are both fewer
birds in the bush than are presently in hand and most or all of them will fly away
into the hands of others, who possess greater skills and abilities, if the
attempt is made to reach for them.
This must ultimately be the result even if somehow, the
present fast-food workers and the like could be enabled to keep their jobs for
a time. Even so, practically every time that it became a question of hiring
someone new, the new employees would almost certainly be drawn from the ranks
of workers of greater skill and ability than those who had customarily been
employed in these jobs. Thus, even if not immediately, in time there would
simply be no more room in the economic system for workers at or near the bottom
of the skills ladder.
No one can question the desirability of being able to
earn $15 an hour rather than $7.25 an hour. Still more desirable would be the
ability to earn $50 an hour instead of $15 an hour. However, it is necessary to
know considerably more than this about economics before attempting to enact
sweeping changes in economic policy, changes to be achieved by attempting to organize
a mass movement that is based on nothing but a desire for economic improvement
and no real knowledge whatever of how actually to achieve it.
George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. His website is www.capitalism.net. Follow him on Twitter at @GGReisman.
