Minimum Wage

Have We Lost That Much Faith in Free Markets?

There has been quite a bit of chatter recently about passing a $15/hour federally mandated minimum wage in the United States. Pundits have already weighed in on this topic, yammering along predictably political lines and citing how “complex” the issue is, etc. However, is it possible to simplify this problem and take the politics out of the equation in order to look at the issue objectively? We here at The Objective Observer would certainly like to think so. So let’s give it a try. Let’s analyze the issue according to the following questions.

  • Is it constitutional?
  • Does it make sense?
  • Why the magical $15/hour? Why not $10 or $20 or $100?
  • Does it follow American tenants and ideals?
  • What are the impacts?
  • Who is helped and who is hurt?

Is it constitutional?

Seems so considering West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937) and then later United States v. Darby Lumber Co., 312 U.S. 100 (1941). Now, that doesn’t necessarily mean much considering the Supreme Court’s spotty record on protecting free speech in America. After all, the Supreme Court is certainly not immune to protracted periods of dumbassery. In addition, there are those that have argued that more recent Supreme Court decisions that aren’t approaching 100 years old, like Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015) may indicate a shift in opinions or serve as precedent for the Supreme Court to declare federally mandated minimum wages unconstitutional. But, for now, seems to clear the constitutional hurdle.

Does it make sense?

Well, Mississippi has the lowest cost of living in the country with a Cost Index of 86.1. California is nearly double that at 151.7. See for yourself. So, there is a solid argument here that if two states are so different that one has a cost of living that is half of another, then why would both states have the exact same minimum wage? Wouldn’t one expect for the effective minimum wage in those states to reflect a similar proportion as their costs of living?

This is, in fact, exactly what we see. Mississippi has no state minimum wage and thus the effective minimum wage is the current federally mandated minimum wage of $7.25/hour. California currently has a $14/hour minimum wage. California’s minimum wage is just shy of twice that of Mississippi’s, just as California’s cost of living is just shy of twice that of Mississippi’s. Hark! Is that the faint sound we hear of the free market doing its job?

Now, let’s look at this another way in terms of the current administration’s latest buzzword, “equity”. You see, the image at the top of this article is meant to visually explain “equality” on the left versus “equity” on the right. America has traditionally sought to guarantee equality of opportunities but the new focus is on guaranteeing “equity of outcomes”. Setting aside that “equity of outcomes” is the same goal as socialism while simultaneously setting aside the artist’s rather unfortunate decision to use racist stereotypes, portraying minorities engaging in illegal activity by trying to watch a baseball game without paying… Setting all of that aside… Setting all of that aside… >deep breath< OK, seriously this time, setting all of that aside, does an equal $15/hour for everyone jive with equity of outcomes? Absolutely not, that tall guy in Mississippi is making out way better than that poor little baby in California. And besides, when we objectively look at that equality vs. equity image, all we see is some tall dude with male pattern baldness being a complete and utter asshole. And whether you believe in equality or equity, assholes are assholes.

So, whether we look at this based upon common sense principles of looking at reality and fairness or we look at this through the current administration’s new lens of “equity”, we have to rule this one a fail. That high of a federally mandated minimum wage does not make a lick of sense based upon the wildly different costs of living within these United States.

Why the magical $15/hour? Why not $20 or $100?

Currently, Washington D.C. is the only place in the entire country with a minimum wage of $15/hour. Incidentally, Washington D.C.’s Cost Index is 154.3. This minimum wage thing then starts to smack of yet another case of the political elites being wholly and decidedly myopic. Let’s face it, Washington D.C. in no way, shape or form represents the majority of America. Instead, Washington D.C. is an oddball of an area that in many ways is the complete and utter opposite of over 80% of the United States. But here we see perhaps where this magical $15/hour number comes from. It comes from what the political elite see as working in Washington D.C. Well, hate to break it to you, but there is an argument to be made that if it works in Washington D.C. it will most likely fail everywhere else in the country.

As for the second part of this question, reasonable people might ask, if $15/hour is good, then why wouldn’t $20/hour be even better? Hell, throw caution to the wind, make it an even hundo! We can’t be certain, but the real reason for the magical $15/hour seems to be based on federal poverty level definitions. The poverty level for a household of four in 2020 is an annual income of $26,200. So, if you work 85% of the time; hey, vacations and holidays man, then during the typical 2,080 work hours in a year, that gives you 1,768 hours. $15/hour multiplied by 1,768 hours gives you $26,520, or just above the poverty level. So, this rather arbitrary number does not seem to be based on any kind of science related to why $15/hour versus some other figure, it seems more about a bunch of myopic politicians being able to pat themselves on the back and say “We ended poverty!”. Note, there would still be poverty. Thus, we are going to have to fail this one based upon a lack of “listening to the science”.

Does it follow American tenants and ideals?

Well, first up is fairness. Fairness is a core American ideal. One might argue that everyone making at least the same amount of money is perfectly fair. However, we disagree. Based upon Mississippi and California above, there is certainly no fairness here. People in Mississippi benefit much more than people in California so, that’s not fair. Thus, the $15/hour minimum wage fails the fairness test.

How about another cornerstone of America? Belief in free markets. While free markets are never perfect, we Americans tend to believe in the superiority of the free market system given the alternatives. Have we so little faith in the free market system that we require a $15/hour minimum wage? We are not saying that minimum wages are socialism or anything but it certainly smacks of being anti-free market. That being said, it’s most definitely socialism. To quote Karl Marx:

To each according to his needs, from each according to his ability.” – Karl Marx

Considering that the magical $15/hour figure’s purpose is to seemingly raise everyone above the poverty threshold, even if that won’t actually happen, this definitely strikes an objective observer as a “to each according to his needs” kind of moment. So, we are going to fail this one too, a $15/hour minimum wage does not strike us as being very American.

What are the impacts?

Doubling the minimum wage would unquestionably lead to inflation. This is called wage push inflation. Small raises (10%) only have minimal inflationary risk, but “large minimum wage hikes have clear positive effects on output prices which can ripple through to higher consumer prices”. A >100% increase in the minimum wage therefore will result in higher prices for everyone. It almost seems like a tax on the more wealthy in this regard, with a wealth transfer to the less wealthy. Oh, shit, that’s exactly what it is.

In any case, the number of impacts is actually rather long and there is a lot of general disagreement about the specifics of possible impacts. The reality though is that nobody knows because nobody has ever doubled the federal minimum wage before. So, go educated yourself, we are going to rule this one as neutral and call it a day.

Who is helped and who is hurt?

There seems to be a decent amount of consensus by economists in terms of who is hurt by minimum wages increases:

  • Young workers
  • Unskilled workers
  • Job seekers
  • Small businesses

As evidence, according to macroeconomist Greg Mankiw, 79% of economists believe “a minimum wage increases unemployment among young and unskilled workers.”. Also, to summarize a 2015 survey regarding a $15/hour minimum wage hike; oh yeah, this is not a new idea folks, 83% of economists believed that raising the minimum wage to $15/hour would have negative effects on youth employment levels. Similarly, 76% believed a $15/hour minimum wage would have a negative impact to the number of jobs available. Finally, 67% of those same economists believed that a $15/hour minimum wage would have a negative impact on small businesses with less than 50 employees. Negative impact in this case means “going out of business”.

As for who it helps, we guess we could conclude from the above that it would help large corporations and skilled adult workers? It’s hard to say though. We do just want to point out that $15/hour can pay for a LOT of automation to avoid having to pay someone at all… Just sayin’ We live in a world of technology after all. Robots don’t get paid wages. So, can we draw a conclusion on this point? Sure we can. Seems to an objective observer that the $15/hour minimum wage hike proponents argue their case on the idea that this would help bring people out of poverty. However, economists seem pretty clear that the impacts would in fact harm those individuals most likely to be in danger of poverty; young, unskilled and jobless workers. So…fail.

Conclusion

OK, tallying the results we have 1 pass, 4 fails and 1 neutral, with the neutral really the result of us just being too damn lazy. But, even if we would assign that neutral to the pass category, it’s still 2 to 1 in favor of fail. There, this whole minimum wage issue really isn’t that complex after all…

Author: theobjectiveobserverblog

Always go with funny...

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