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Don’t Increase the Minimum Wage

March 8, 2016 Posted by Liam Sigaud - No Comments

Proponents of a higher minimum wage, led by the Maine People’s Alliance, have gathered enough signatures to put their $12 minimum wage proposal on the ballot this November. The proposal, hailed by the Maine Small Business Coalition—a progressive organization—as “good for our communities, [and] good for small businesses,” has alarmed many economists, business owners, and policy analysts.

Earlier this month, a group of business leaders and legislators announced their support for a competing $10 minimum wage proposal. Yesterday, Senator Roger Katz (R–Augusta), writing in the Kennebec Journal, warned that an increase to $12 an hour “would end up hurting thousands of Maine’s small businesses and the very workers it is intended to help.” Peter Gore, vice president of the Maine Chamber of Commerce, told the Portland Press Herald that the $10 proposal is a “more reasonable alternative,” insisting that “for many in the small-business community, [a $12 minimum wage is] not bearable.”

Though a $10 minimum wage would certainly be preferable to a $12 minimum wage, either proposal would harm businesses and workers across the state of Maine.

There is no doubt that wages in Maine are too low, that earnings are too often insufficient to afford basic necessities, and that lawmakers need to focus on ways to boost economic growth and job creation. However, raising the minimum wage would cost jobs, increase prices for consumers, and do nothing to address the needs of the poor.

Increasing wages by government fiat doesn’t work. Minimum wages make it more expensive to hire workers, motivating employers to lay off low-skill employees whose contribution to the business doesn’t justify the government-imposed wage. If a particular McDonald’s employee earns the company $8 an hour, but the minimum wage is set at $10 an hour, the employee won’t enjoy higher wages – he’ll be shown the door. As Tyler O’Neil of the American Enterprise Institute puts it, “a minimum wage increase may sound like a raise, but it looks more like a pink slip.” A recent analysis by the Employment Policies Institute found that a $12 minimum wage in Maine would cost nearly 4,000 jobs.

These aren’t theoretical musings or armchair conjectures. Empirical studies of minimum wage laws reveal their detrimental impact on unemployment and poverty. The Federal Reserve Bank of San Francisco, after reviewing national and state-level minimum wage policies, concluded last December that “a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000.” The Congressional Budget Office, a nonpartisan organization, estimates that increasing the federal minimum wage to $10.10 an hour—just 10 cents more than the competing measure in Maine—would reduce employment by about 500,000 low-skill workers nationwide and exacerbate dependence on government welfare programs.

Nor would raising the minimum wage do anything to reduce poverty, as thousands of low-wage Mainers would lose their jobs and the relatively few who would see higher wages generally are not poor to begin with. As the Heritage Foundation points out, “the average minimum wage worker lives in a family making over $50,000 a year,” substantially more than the average Mainer’s income. Many minimum wage earners are teenagers or college students working part-time and learning valuable jobs skills. Nearly 50% of job losses in Maine caused by a $12 minimum wage increase would be among 16 to 19-year-olds.

While a minimum wage increase is a misguided way to boost earnings, there is no doubt that lawmakers should do more to motivate businesses to hire more workers and help the poor acquire good-paying jobs. For starters, policymakers should cut regulations that make it more difficult to start and operate a business, inject competitive forces in our health care system to drive down costs, and reduce the tax burden on hardworking Mainers by expanding policies like the Earned Income Tax Credit.