Minimum Wage Hike Measures Ignore a Dismal Reality

Unions sponsor dueling propositions to raise pay minimums to $15

Polls show a majority of Americans favor raising the minimum wage. It's easy to understand the sentiment, given how tough it is to get by working in a low-wage job. Indeed, support for such efforts is so high in California that two unions are proposing dueling minimum-wage-hike initiatives for the November 2016 ballot, with the emphasis on the size of the benefit boost and, undoubtedly, who gets the credit.

Yet the nature of the debate—who can be against helping the working poor, or policies touted as virtually cost free?—brings to mind 19th century Scottish historian Thomas Carlyle, who is known for calling economics the "dismal science" given that economists were the ones arguing the grim laws of supply and demand should determine wages. (Bizarrely, Carlyle called for the reinstatement of slavery in the West Indies as an alternative, but that's another story.)

Even today, it might take an economist to make the obvious and dismal point that labor is like any other commodity. It is subject to supply and demand, no matter how much we might wish it were otherwise. The big political question as we head into next year's general-election season is whether opponents of these coming minimum-wage-increase efforts will be able to get this point across to voters, or whether happy wishes will trump dismal reality.

The battle between related unions is fascinating. The Service Employees International Union (SEIU)-United Healthcare Workers West had previously proposed an initiative to raise the minimum wage to $15 an hour by 2021. It deals only with wages and has received backing from influential politicians, including Lt. Gov. Gavin Newsom, a Democrat running for governor in 2018. The campaign already has collected hundreds of thousands of signatures.

Now the larger SEIU State Council has filed with the state attorney general a measure that would accelerate the wage boost ($15 by 2020)—but also require employers to provide double the number (six) of mandatory paid sick days and require such days be provided to in-home health workers, also.

Backers of a minimum wage boost fear that competing measures will harm the chances that one of them will pass. Supporters of the wage-only one believe adding a sick-day element confuses matters and therefore undermines its chance of passage. Yet there's already talk that both sides will get together and negotiate an agreement over one measure, and then put their vast resources behind the election push.

Some of what wage-hike backers say is unquestionably true. "Income inequality is a serious economic and social problem facing the state of California," according to the newly filed initiative. "Many Californians work full-time jobs, but earn too little to provide their families with housing, groceries, medical care and other life necessities."

The core issue, though, is how to realistically bridge that gap and provide better opportunities for the poorest workers. That's where these proposals become problematic, and it's easier to grasp when we go from the big-picture macroeconomic to the more-personal microeconomic level.

When I managed a payroll, there was only a certain amount of money available. If costs went up, something had to go down, including the size of our workforce. Free-market economists talk about the "seen and unseen" consequences of policy changes. Some workers might see the impact of a higher wage in their wallet, but it's harder to see the jobs that weren't created or the reduction in employee hours imposed by businesses because of the mandated wage increase. (We all, however, see self-service kiosks, which are one way businesses make do with fewer workers.)

Wage-hike backers tout their own happier form of economics. The Los Angeles-based Economic Roundtable released last month a union-underwritten study claiming an increase to $15 an hour in the city of Long Beach will add $442 million in sales to that region. Yet the researchers didn't seem to spend much time wrestling with the hard issues: What about declines in business spending or employment growth? They mostly measure the benefit rather than the cost.

Still, this clearly is a movement. California cities, including San Diego, have been pushing minimum-wage increases. San Diego's City Council voted last year to override Mayor Kevin Faulconer's veto of a measure that would boost the lowest wage to $11.50 by 2017. But the business community is placing a referendum to overturn the law on the June 2016 ballot. By then, however, the state will be in the thick of an initiative battle that could make the local ordinance a moot point.

However this initiative debate plays out, the real focus should be on policies that help create more high-paying jobs, so that low-wage workers can put their energies into improving their education and skills. That's a better way to get a living wage than advocating for government-mandated pay hikes. That may be dismal news, but it's reality.