David R. Henderson  

The Devastating $15 Minimum Wage: Don't "Experiment" on Non-Volunteers

Lake Wobegon Keynesians... Two Terror Graphs...

In yesterday's Washington Post, Charles Lane reports on the move, that's almost a done deal, to raise California's minimum wage in stages to a whopping $15 an hour by 2022. Lane, or his editors, wisely titled the article, "The risks of California's minimum-wage increase."

Lane writes:

By 2022, when fully phased in (small firms with fewer than 25 workers would have until 2023 to comply), the California minimum wage would represent 69 percent of the median hourly wage in the state, assuming 2.2 percent annual growth from the current median of roughly $19 per hour.

That 69 percent ratio would be all but unprecedented, in U.S. terms and internationally. The current California minimum wage represents about half the state's median hourly wage, just as the federal minimum wage averaged 48 percent of the national median between 1960 and 1979, according to a 2014 Brookings Institution paper by economist Arindrajit Dube. (It is currently 38 percent of the national median.)

Other industrial democracies with statutory minimum wages typically set theirs at half the national median wage, too.

Even Dube recommends a minimum wage equal to half the median wage. One that's 69 percent of the minimum wage is 38% higher than the level Dube recommends.

So Dube would oppose such an increase, right?

Wrong. Assuming that Lane reported Dube's response accurately, he favors the increase. Why? Lane writes:

He [Dube] told me by email that California's experiment is worth running and monitoring.

But these are humans being experimented on. Worth monitoring? Absolutely. Worth running? No damn way.

Economist Jonathan Meer, whose work Lane also cites, writes on Facebook (I am quoting with permission):

Playing with the March CPS [Current Population Survey], I find that a whopping 11% of young high school dropouts in California have a full time job. 85% of all high school dropouts in California are paid $15 an hour or less. Among young (under 30) high school dropouts, that number is 96%. Among *all* black and Hispanic respondents under 30 (irrespective of education), 90% are paid $15/hr or less.

This will not be good.

Comments and Sharing

COMMENTS (20 to date)
Jon Murphy writes:

Here's something I don't quite understand:

At a talk he gave at Dartmouth, Arin was pretty skeptical of a $15/hr wage. His own research showed that even modest increases cost jobs and this is hardly a modest increase.

Michael Reich of UC Berkley did an analysis on the proposed increase and, even given a longer phase-in time and his own generous assumptions on the spending multiplier effect, found that the increase would cost jobs and shrink the size of the economy (http://www.irle.berkeley.edu/cwed/briefs/2015-01.pdf).

In both cases, the supporters realize the costs outweigh the benefits. I'm trying not to ascribe sinister motives here, but I can't imagine why anyone would advocate for a policy they know won't work.

LD Bottorff writes:

How can you say the costs outweigh the benefits? The benefits accrue to the politicians that pass this legislation in the form of higher probability of re-election. What does it cost them?
The costs accrue to those who lose jobs, or can't start or expand their businesses. That's not likely to affect the re-election of any California legislator.

CMOT writes:

Up to $1 trillion in economic activity is projected to move from California to Gulf and Atlantic Coast states after the enlarged Panama Canal open this year. I used to think that figure was way too high, but now it looking pretty good.

I suspect there's going to be a substantial business opportunity for drivers taking empty U-Hauls back to California ...

Maniel writes:

Prof. H,
I concur with LB Bottorff: big win for politicians and unions. This will keep even more poor and unskilled poor and unskilled, i.e., victims of racism, corporate greed, globalism, free trade, and more dependent on government than ever. In spite of the protests of the DHendersons, DBoudreaux, TSowells, WWilliams, and JRileys of the world, the reality is that 1) the poor are unlikely to know much about economics, 2) even if they do, they are unlikely to vote, 3) even if they do, they are likely to vote for “caring” Democrats, and 4) in California, even if they don’t, the Dems are in complete control of state government for worse or still worse.

fralupo writes:

You've forgetting the really awesome part: the deal includes indexing the statewide minimum wage for inflation. Unless the real median wage grows the CA minimum wage will be high forever.

Maximum Liberty writes:

@ LD Bottorff: "That's not likely to affect the re-election of any California legislator."

Especially after those job-deprived folks move out of state.

Aaron writes:

To be charitable, the minimum wage will not be 69% of the median wage after the effect of the minimum wage itself, which will raise the wages of some and eliminate from the average low wage jobs which are eliminated or aren't created.

The resulting percentage will still probably be less than in France where it's north of 60%. Now admittedly I don't want to be in the same category with France on anything having to do with economic policy, but at least the CA minimum wage is not completely unprecedented.

MikeP writes:

...but at least the CA minimum wage is not completely unprecedented.

Nor are unemployable and hence alienated underclasses.

jon writes:
I'm trying not to ascribe sinister motives here, but I can't imagine why anyone would advocate for a policy they know won't work.
Some advocates like Ron Unz see a higher minimum wage as a solution to illegal immigration:
  • The automatic rejoinder to proposals for hiking the minimum wage is that “jobs will be lost.” But in today’s America a huge fraction of jobs at or near the minimum wage are held by immigrants, often illegal ones. Eliminating those jobs is a central goal of the plan, a feature not a bug.
JK Brown writes:

So after 1929, wages needed to fall but the FDR administration, allegedly a the behest of the power labor unions, wouldn't let wages adjust so we had the Great Depression. And it was great if you were lucky enough to have full time work.

And now, without a bubble collapse, but in rather a difficult economy, the government is jacking up wages by fiat. Keep in mind, this will not just impact those making less that $15 as the minimum rises workers will expect to maintain their relative "skill differential". Why will this not also result in a depression, although perhaps not so great this time?

It is interesting that the response by those businesses that survived, was to invest in more productive, less labor-using, machinery, which is the expected response to this wage hike with a move to robots.

Kevin writes:

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Mark Barbieri writes:

There is a simple "compromise". Make the minimum wage voluntary for each person. Call it the "pro-choice" position - a laborer has the right to do what she wants her body.

Thomas Strenge writes:

California's decision to commit economic suicide evokes the most German of feelings in my Teutonic soul: Schadenfreude. Yes, poor people will be hurt and that is regrettable. But many of them, through their own ignorance, have supported these moves. People should suffer the consequences of their actions. Even better is that those in the middle and upper class who are supposedly educated and "smart" will finally suffer as well for their support of a "free lunch". Check out lines at retailers will become self-check out lines. Only restaurants catering to the rich will have waiters. More warehouses will shift to Arizona and Nevada whose politicians must be high-fiving themselves for this stimulus. As we say in Germany: Dummheit laesst Gruessen (Stupidity says hello).

Charley Hooper writes:

Testing a new drug on unwitting or unwilling subjects is tantamount to medical malpractice and is punishable through the criminal justice system.

So how can testing new legislation on similar people be anything less?

Dale Courtney writes:

Why not raise the minimum wage to $250/hr and make everyone in California a millionaire?

Benjamin Cole writes:

With only muted controversy or condemnation, California is already executing a near-ubiquitous stifling of free enterprise: Universal and extremely stipulative property zoning.

Oh sure, once in while the Bay Area liberals are bashed for anti-growthism.

But in fact, Newport Beach, Calafia Beach, and other whole stretches of coastal cities have methodically downzoned everything.

There are square miles of single-family detached neighborhoods in every region that are sacrosanct.

Bulldoze ocean communities for forests of high-rise condo projects, with ground-floor retail?

No one believes in free markets or highest and best use in their own neighborhood. Everyone becomes a pinko greenie-weenie. Especially those living in pleasant single-family detached enclaves.

But let's bash the minimum wage!

David R. Henderson writes:

@Benjamin Cole,
No one believes in free markets or highest and best use in their own neighborhood.
You’re absolutely wrong. Every time anyone in my town of Pacific Grove seeks permission to build anything, I favor it. You might want to do some homework before making such attacks on people’s character.

Benjamin Cole writes:

David Henderson:

I apologize if you thought my rant was directed at you personally. It was not.

I look forward to frequent posts by you on the need for California and other high-cost regions to move to "highest and best use" or no zoning as the norm or default mode regarding property zoning.

And how about a few posts on the need to decriminalize push-cart bending?

You write a great blog. I just feel that too many bloggers go mute regarding property zoning, push-cart vending, the lawyers guilds, or even parasitic federal agency spending civilian and military.

In truth, many single family detached neighborhoods within a few miles of the Pacific Ocean should be bulldozed for forests of high-rise condos with ground-floor retail.

David R. Henderson writes:

@Benjamin Cole,
I apologize if you thought my rant was directed at you personally. It was not.
I accept your apology.

guthrie writes:

I am one of the unwilling guinea pigs in this experiment (living in LA, low/medium skill level, no degree, currently out of work and actively looking). To make ends meet, I need about $13/hr, which to me is a fair enough price for my years of experience in customer service. I will report on the efficacy of this change as I look for employment.

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