Labor Day Confidential: The Misguided Logic Behind Minimum-Wage Hikes


On Monday, Los Angeles Mayor Eric Garcetti will announce a proposal to jack his city's minimum wage from $9.00 all the way up to $13.25 over three years. That puts him ahead of President Obama, who has called for goosing the federal minimum wage from $7.25 to $10.10.

That's the opening of a new Time column by me.

Hikes in the minimum wage are routinely sold as a quick and easy way to increase the income of the working poor, but it's actually a really rotten way to do that. That's partly because so few people earn the minimum wage (only 3 percent of all workers) and they rarely earn it for very long (most min wage workers earn more after a year on the job). And then there's the simple fact that people earning the minimum wage aren't necessarily poor (in fact, a sizable chunk belong to households making north of $100,000). As economist and Reason contributor David Henderson has noted, a study of the effects of minimum-wage hikes between 2003 and 2007 found no evidence that the increases "lowered state poverty rates."

If you are interested in using government intervention to raise the income of poor people, the most-direct way is to give them money. That goes directly to their bottom lines and doesn't distort labor markets or make low-skilled employees more expensive. More from my Time column:

University of California sociologist Lane Kenworthy, a progressive who has called for a more generous social safety net, argues that virtually all increases in income for poor families in the U.S. and other wealthy countries since the late 1970s have been a function of "increases in net government transfers — transfers received minus taxes paid." That's partly because workers in poor households often have "psychological, cognitive, or physical conditions that limit their earnings capability" and partly because today's "companies have more options for replacing workers, whether with machines or with low-cost laborers abroad."

To be sure, arguing that you want to increase direct aid to poor families doesn't give a politician the same sort of photo-op as standing with a bunch of union leaders on Labor Day and speechifying about the urgent need to make sure an honest day's work is rewarded with a living wage.

But making just such a case could have the benefit of actually helping poor people in the here and now. Certainly a savvy politician could sell that to voters who know the value of hard work — and the limits of economic intervention.

Whole thing here.

Watch "What We Saw at NYC's Fast-Food Strike," from December 2013: