Workers who make the least are hit hardest by short-sighted minimum wage hikes
As economist Murray Rothbard once put it, there is only one way to describe a minimum wage law: “It is compulsory unemployment.” If the activist group The Committee to Raise the Minimum Wage in Nevada gets their way, Nevadans will see exactly what Rothbard warned against.
The group has filed a petition to get a massive minimum wage hike on the ballot in 2016 as a proposed constitutional amendment. Currently Nevada’s minimum wage is set at $8.25 an hour, or $7.25 if an employer offers health insurance. The constitutional amendment would have to get voter approval in 2016 and 2018.
If passed, the minimum wage would jump to $9.25 after the 2018 election and grow by 75 cents a year from 2020 to 2024, topping out at $13 an hour.
Economists of all stripes agree that higher minimum wages disproportionately hurt small businesses that don’t have room in their already tight budgets to absorb the higher costs — but ultimately it is the disadvantaged and entry-level workers who’ll be hardest hit by this short-sighted initiative.
Mandating an artificially high wage does little to improve the living standards of low-income workers, and actually marginalizes the very people who most benefit from low-paying jobs. Teenagers who are trying to build their resumes will also be especially hard hit, as Nevada’s constitution would no longer exempt workers under 18 from minimum wage requirements.
Research has shown that the majority of minimum wage employees are not adult workers who are trying to earn a “livable” income. The vast majority of minimum wage earners live in a multi-income household, and are using the job as a stepping stone to more lucrative employment opportunities.
The average family income for a minimum wage worker is over $50,000 per year, as most minimum wage workers are earning supplemental income for their entire household. Furthermore, over half of these employees are between the ages of 16 and 24, young workers who are looking to enter the job market — possibly for the very first time. Two-thirds of minimum wage workers earn a pay increase within the first year of their employment, showing that getting that first job is a vital step toward successfully earning higher income.
Unfortunately, it’s these very workers that would suffer the most under the proposed amendment, just like what happened in 2015 when Seattle began increasing its minimum wage to an unsustainable $15 per hour.
The restaurant industry is one of the best barometers for minimum wage employment, as many industry employees are paid the legal minimum. In the first six months after Seattle increased its artificially high wage, the industry saw bigger job losses than at any other time since the beginning of the recession. As union-backed politicians price-fixed unskilled labor in Seattle, businesses that used low-paid labor did exactly what economists of all backgrounds had predicted – they began laying off their least essential employees.
This is not the kind of anti-worker public policy that should be imported to Nevada. Instead policymakers should pursue the low taxes and reduced regulations that foster economic growth. In a booming economy, as businesses compete for employees, wages will rise naturally without the heavy hand of government mandates.
To that end, Nevada should be making it as easy as possible for businesses to hire citizens who are trying to enter, or reenter, the workforce — not pricing such inexperienced and unskilled workers out of the market. Income mobility, employment opportunity and economic diversity will do more to lift disadvantaged workers from poverty than any kind of government price control over the cost of their labor.
Artificially inflating the minimum wage might make some well-meaning social justice warriors feel better about themselves, but that ultimately won’t mean much to the aspiring employees and laid-off workers who find themselves with fewer job opportunities moving forward.
Michael Schaus is communications director for the Nevada Policy Research Institute, a nonpartisan, free-market think tank.