Job-killing wage mandates set to sweep the country

Original Article:

  • Author: Michael Saltsman and Rebekah Paxton

  • Publication Date: December 2021

  • Newspaper: Orange County Register

More than 80 states and localities will raise minimum wages on New Year’s Day, an ill-timed mandate if there ever was one. Inflation-linked increases are particularly steep this year, rising nearly five percent on average in more than 55 states and localities that raise wages with the Consumer Price Index (as compared to 1.7 percent last year).

In left-of-center locales, these scheduled increases are no longer sufficient: The fighters for a $15 minimum are now the advocates for $18 or more — despite a growing body of research demonstrating the failure of the $15 experiment.

It starts, as so many bad policy ideas do, in California. San Francisco was the state’s first major city to embrace a $15 minimum wage, with voters enacting a ballot measure in 2014 that rapidly raised the wage floor over three years. San Francisco was both preceded and followed by an explosion of locality specific wage increases in the state; today, 38 California localities have their own minimum wage levels, with an average value of roughly $16 an hour.

Numerous empirical studies have documented the consequences of California’s prolific pay mandates. A Harvard Business School report identified a 14 percent increase in the likelihood of restaurant closures in the Bay Area associated with each dollar increase in the wage floor. (We tell the stories of many of these closures at Economists from Cornell, the Georgia Institute of Technology, and the University of Washington compared employment in the state’s retail sector to Texas’ (where the minimum wage is $7.25) and found a nearly 21 percent relative decrease in workers’ weekly hours.

A recent National Bureau of Economic Research working paper analyzed several California cities’ recent wage experiments and found “virtually no evidence of poverty (low-income) reductions.” Another study in the American Journal of Health Economics, studying the experience in California and other markets with a higher minimum wage, identified a nearly one-percentage point reduction in the receipt of employer-sponsored health insurance associated with each one-dollar wage hike.

The consequences of large minimum wage hikes are not unique to California. A recent paper from economists at the University of California-San Diego and the American Enterprise Institute analyzed all state and local minimum wage increases through 2019. The authors found that large increases such as California’s “reduced employment rates among low-skilled individuals by just over 2.5 percentage points,” while small increases had an economically-modest impact.

Instead of asking whether the minimum wage is too high, advocates ask whether it’s high enough. West Hollywood recently enacted a $17.64 hotel minimum wage and paired it with 96 hours annually of paid leave. A proposed ballot measure for California’s 2022 ballot would create an $18 minimum wage in the state, sending its more-liberal localities scrambling to hit $20 or more. One candidate for California’s State Assembly is running on a wage-raising platform of $22 by 2022.These ideas won’t gain traction in Congress anytime soon. Earlier this year, eight Senate Democrats joined with 50 Republicans in voting down a proposed $15 federal minimum wage, citing concerns about the economic impact on restaurants and less-skilled job seekers. Momentum in DC has also diminished as the tight job market encourages some employers to embrace starting wage rates as high as $20 an hour, no mandate required.

But even action on the federal level would not dissuade blue states and deep blue cities from embracing extreme ideas. The rhetoric is the same: The case for an $18 minimum wage is the same as it was for $15, $12 and $10 before that. The promise of poverty reduction is always one more wage hike away. But the data is clear that endless wage hikes match the definition of insanity: Doing the same thing over again and expecting a different result.

Michael Saltsman is managing director and Rebekah Paxton is director of research and state coalitions at the Employment Policies Institute. Saltsman is on the board of the California Business & Industrial Alliance. ᐧ