If your wallet has felt a little fatter recently, you’re not alone. After a decade or so of stagnation, Americans’ wages are finally starting to grow, and not a moment too soon. As of this spring, wages were growing at about 3.4 percent year over year — the highest rate in more than a decade. The grim post-Great Recession slog is finally over.
The raises Americans are increasingly commanding have nothing to do with government mandates — regulations, minimum wage laws, or the like. Rather, it all comes down to basic economics. The economy is booming, leading to reduced unemployment. That in turn creates higher demand for workers from businesses. The upshot? Employers big and small have to offer more money to recruit and retain talent. Employers from Walmart to McDonalds have recently hiked wages. This is a classic vicious cycle.
The Democrats, all too often, seem confused on this point. They’ve often said that “America deserves a raise.” That’s true, to a point. But the Democrats all too often seem to believe that the government is in the business of deciding who gets paid what. That kind of economic meddling seldom ends well, and often ends up hurting those it is designed to help.
Consider the latest move out of the House of Representatives, under the control of liberal House Speaker Nancy Pelosi. “The U.S. House approved legislation that would more than double the federal minimum wage to $15 an hour, fulfilling a campaign promise of Democrats who control the chamber,” Bloomberg news reported on Thursday. “The legislation that passed on a 231-199 vote would boost the nation’s $7.25-an-hour wage floor to $15 by 2025 and then automatically adjust it going forward.” The House’s action is largely in line with what many Democratic presidential candidates are calling for: Sen. Kamala Harris of California, Sen. Elizabeth Warren of Massachusetts, and South Bend, Indiana, Mayor Pete Buttigieg all back a $15 an hour minimum wage. Even former Vice President Joe Biden — supposedly the moderate one in the race — does too. (Ms. Harris’ California has already passed a bill that will raise the state minimum wage to $15 an hour by 2022.)
There can be no doubt that those earning low hourly wages often struggle to make ends meet, particularly in this era of high housing, health care and education costs. Indeed, that’s why the current boom is such salutary news; it’s lifting up even those at the lower end of the pay spectrum.
Raising the minimum wage too high, by contrast, could do real damage to many Americans.
We know this because economists have been paying close attention to those states and municipalities that have raised their minimum wages in recent years. In California, a team of researchers from the University of California at Los Angeles have been following the graduated minimum wages since they were passed, and the results are discouraging for those in, for instance, the restaurant industry. “the increments in the minimum wage from 6.75 to $7.50 in 2007 and to $8 in 2008 were estimated to increase earnings in limited service restaurants slightly more than 10% but reduced employment by about 12%,” they found. In other words, workers came out at a net loss.
The experience of the city of Seattle, which is also raising its minimum wage in phases, told a similar story. There, according to economists at the University of Washington, employers have reacted to minimum wage hikes rationally, if coldly: They’ve been reducing their employees’ hours. Therefore, lower wage workers have actually lost income as a result of the minimum wage hike, they found — they are now earning about $125 less a month.
A $15 an hour minimum wage at the national level could have a similarly deleterious effect, but this time at a mass scale. The Congressional Budget Office tallied up the legislation and found that the new wage levels could eliminate some 3.7 million jobs.
With Republicans firmly in control of the Senate and President Donald Trump also opposing it, the House bill is almost certainly dead. That’s a good thing for all Americans. Americans deserve a raise, yes. And they don’t deserve to be laid off. That would be the unhappy effect should this bill ever become law.
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