What People Get Wrong About Raising The Minimum Wage

November 11, 2015 Posted by Liam Sigaud - No Comments

An effort to raise the minimum wage in Portland to $15/hour was defeated last week, representing an important victory for conservative, free-market ideas in Maine. But several groups are already organizing a citizens’ initiative to put a state-wide minimum wage increase on the 2016 ballot.

The proposal would increase the minimum wage to $9 an hour in 2017 and then by $1 a year until it reaches $12 in 2020. Thereafter, the minimum wage would increase at the same rate as the cost of living.

Leading the effort is the Maine People’s Alliance, which argues:

“Raising the minimum wage is good for our communities, and good for small businesses. The Mainers who would benefit the most from raising the minimum wage are also the people who are more likely to spend that extra money in their communities, improving our local economies.”

Ensuring that Mainers can earn enough to support their families, trying to lift people out of poverty, and striving to revitalize our small businesses are commendable goals, but increasing the minimum wage will accomplish none of those things.

Here’s a look at some of the myths propagated by liberal minimum wage advocates, and how the evidence proves them wrong.

“Job losses from raising the minimum wage are negligible.”

On the contrary, a minimum wage increase is likely to cause thousands of Maine’s most vulnerable, low-income workers to lose their jobs. Employers, faced with the need to pay all of their workers at least $12/hour, would lay off those employees whose productivity and value to the business cannot justify such a wage. In effect, minimum wage laws force employers to discriminate against low-skill workers, especially teenagers and young adults who are entering the workforce.

A study published by the Cato Institute summarizes the devastating impact of high minimum wages on many employees: “While they are often low-paid, entry-level jobs are vitally important for young and low-skill workers because they allow people to establish a track record, to learn skills, and to advance over time to a better-paying job. Thus, in trying to fix a perceived problem with minimum wage laws, policymakers cause collateral damage by reducing the number of entry-level jobs.”

Proponents of the minimum wage rarely look beyond the immediate consequences of their policies. And it’s certainly tempting to think of the minimum wage’s repercussions in simplistic terms – a waitress who can finally get off food stamps, a janitor who can now afford to send his son to college. But as the Nobel Prize-winning economist Milton Friedman explained, “The true minimum wage is zero – the amount an unemployed person receives from his nonexistent employer.”

“Raising the minimum wage reduces poverty.”

Once again, intuition supports the liberal view that higher wages will cause a decline in poverty. But a careful examination of the data reveals that minimum wage laws do nothing to help those struggling financially. A report in 2012 found that “since 1995, eight studies have examined the income and poverty effects of minimum wage increases, and all but one have found that past minimum wage hikes had no effect on poverty.”

One reason for this is that the majority of poor Americans (63.5%) don’t stand to benefit from a minimum wage increase because they don’t work in the first place. Evidence also suggests that only a small percentage of those who would enjoy higher wages actually live in poor households; many teenagers earning minimum wage benefit from the financial security of their parents.

The primary impediment to upward mobility in America is the lack of job opportunities, not low wages. Minimum wage hikes fail to alleviate poverty because they don’t address unemployment and the educational deficits that many poor struggle to overcome. While some poor benefit from a marginal increase in wages, many more lose their jobs or have their hours substantially cut.

Maine should look closely at the results of minimum wage hikes in the past – deepening poverty, rising unemployment, and a more challenging business environment. History has a way of repeating itself.