How bold a move is a $15 minimum wage?

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2016

  • Newspaper: OC Register

  • Topics: Minimum Wage

Love it or hate it, reporters and commentators agreed on this: California’s $15 minimum wage, signed into law this week by Gov. Jerry Brown, is unprecedented.

Or is it?

Advocates for the policy at a far-left Seattle think tank made the contrarian case that California’s rising minimum wage is entirely consistent with our past experience. As evidence, they compare the Golden State’s coming 50 percent wage increase over six years with similar past increases in the federal minimum wage. Their case in point: When Harry Truman was president, he signed into law an 87.5 percent minimum wage hike in 1950.

It’s a tidy argument, but it’s also wrong. To understand why, it’s important to look at the inflation-adjusted value of the minimum wage over time.

The federal minimum wage was established by the Fair Labor Standards Act in 1938. Its nominal value at the time – 25 cents – is the equivalent of $4.20 in today’s dollars. This “real” value of the minimum wage has ranged in the intervening years from as low as $3.93 an hour (1948) to as high as $10.90 an hour (1968). Over the 78-year history of the federal minimum wage, its average inflation-adjusted value is $7.40 an hour – or 15 cents more than the current minimum wage of $7.25.

From this perspective, a $15 minimum wage – which is more than double the historical average – is quite accurately described as unprecedented.

The advocates err in focusing on the percentage change in the wage floor, rather than its inflation-adjusted level. That shocking 87.5 percent Truman minimum wage increase? In 2015, it’s the equivalent of raising the minimum wage from $3.98 an hour to $7.38 an hour. Because almost no one in the labor force earns $3.98 an hour (or $7.38 an hour, for that matter), this policy change would be a nonevent. The same can hardly be said for $15.

Truman’s 1950 hike also would not have applied to a majority of minimum wage workers today. The minimum wage was originally established as a minimum skilled wage that covered mostly manufacturing, mining and transportation. It was not until the mid-1960s – when Congress expanded the reach of the minimum wage law – that the standard became irrelevant to skilled workers and became the minimum unskilled wage that it is today.

Inconvenient historical facts like these haven’t slowed down the forward march to $15. In fact, if you use the percent increase as a measuring stick for minimum wage hikes, any change could be justified as long as it’s phased in slowly enough. $20 in 2020, or $25 by 2025, or $30 by 2030 – just keep the annual hikes consistent with each other, and you’ve got yourself a defensible minimum wage policy. (These numbers might sound outlandish, but there’s an active effort to put a $20 minimum wage on the ballot in Oakland this fall.)

These logical errors have real-world consequences. The University of New Hampshire Survey Center conducted a survey of labor economists last year regarding their opinions on this topic, and found that more than 80 percent agreed the policy would reduce job opportunities for young adults. These consequences are playing out in real-time in the Bay Area, where wage mandates in Oakland, San Francisco, Berkeley, and other cities are forcing small businesses to scale back or close.

Gov. Brown indirectly acknowledged the reality of these consequences when he said that “economically, minimum wages may not make sense.” That’s undoubtedly true for $15, whose supporters have acknowledged the arbitrary method used to select this figure. The state’s new wage level may be unprecedented, but the coming consequences of the policy are not.