Aspirational politics versus the rules of economics
A CAE panel debates the ultimate effects of raising the minimum wage
Is raising the minimum wage to, say, $15, a “moral imperative” or a government intrusion into private markets that will ultimately hurt the people it proposes to help? Some 200-plus people who attended the American Experiment’s fall speakers’ series at the Minneapolis Hilton heard three diverse experts argue what happens when well-intentioned political aspirations collide with cold economic facts.
Saying that “It’s a crisis that people are living in poverty,” longtime Minnesota Senator John Marty claimed that raising the minimum wage is a moral imperative. Marty has authored of bills in the Minnesota legislature to raise that wage, most recently a bill that would phase the minimum wage to $15 over three years. He cited recent media coverage that concluded dramatic increases in the minimum wage in Seattle had “virtually no impact” on that city’s labor market.
Economist Mark Perry and local trade executive Dan McElroy countered Marty’s perspective from the theoretical view of economics and the real-world perspective of employers. Perry is a scholar at American Enterprise Institute (AEI) and a professor of economics at the University of Michigan. “The real minimum wage is always zero,” he said, because a government-mandated $15-per-hour minimum wage will force employers to cut back on existing jobs or fail to create new ones.
“It has been settled science and economics for several hundred years” that “if you raise the price of a good or service, you will reduce the demand for that good or service, including unskilled workers.”
Perry’s view is that any policy argument about raising the minimum wage is about politics, not economics. Quoting economist Thomas Sowell, he said the first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics, Sowell says, is to ignore the first lesson of economics.
Economics, Perry said, is “grounded in a systematic, rigorous framework of analysis, and based on economic logic, reason and theory.” The “fantasy world of politics,” he added, exposes America to “perverse public policies in a world divorced from economic reality.”
(Editor’s note: McElroy is a seasoned veteran of Minnesota policy discussions at virtually every level. He is president and CEO of Hospitality Minnesota and executive vice president of the MN Restaurant Association, the MN Lodging Association, and the MN Resort & Campground Association. McElroy formerly served as Chief of Staff for Governor Tim Pawlenty. He contributes a guest column on the minimum wage on page 23 of this magazine.)
Perry listed myriad factors that will ultimately undermine workers, not all related to direct layoffs. Among them, reducing the number of weekly work hours; developing labor-saving technologies like self-ordering kiosks; decreasing on-the-job training; reducing or eliminating nonmonetary fringe benefits; enacting stricter work demands; making location and expansion decisions that avoid geographic areas that have high minimum wages; and out-sourcing production overseas.
The minimum wage will erect artificial barriers that will deny employment opportunities to those Americans we want to maximize employment opportunities, Perry said, “especially the most vulnerable among us.”