A $15 Minimum Wage In New York State Would Be A Self-Inflicted Wound

Commentary by Bob McTeer

Source: Forbes

Governor Andrew Cuomo’s proposal for a $15 minimum wage in New York is bolder than most, but why stop at $15? Why not $20 or $30?

The reason is that even most advocates for a higher minimum wage implicitly acknowledge its drawbacks even while they deny any significant negative consequences. While some lucky workers who get to keep their jobs would benefit, some would lose their jobs because they can’t generate equivalent revenue for their employers. Other victims include young people looking for their first job who find the bar has been raised. Others include customers who will have to pay higher prices.

The economics of a minimum wage are not that sophisticated. Most demand curves slope downward, meaning that higher prices reduce the quantity demanded while lower prices increase quantity demanded. The demand for labor is no different. It too is downward sloping unless you want to believe that employers will hire more workers at higher wages than at lower wages. A minimum wage of $15.00 per hour says to employers that it is illegal to pay less than that even if prospective worker would be glad to get it.

The Cuomo proposal would not likely cause mass layoffs in minimum wage industries. What it would likely do is slow the pace of new hiring and increase employer incentives to economize on labor through new technology or otherwise. The first rung on the job ladder would become out of reach for the marginal worker the higher minimum is intended to help. The job market would get more sluggish and the unemployment rate would be higher than it otherwise would be.

I’ve heard liberals argue that the higher wages would give more purchasing power to the workers affected and that would increase demand for the employer’s product or service. That’s nonsense. If your local burger joint is forced to pay a significantly higher minimum wage, the workers that remain would have more purchasing power, but how much of that will they spend at the local burger joint? The costs are concentrated while any additional spending would be diffuse.

I say “any” additional spending because the additional spending by the job retainers would have to be netted against the reduction in spending by the job losers or those unable to reach the low rung on the job latter.

I will concede a couple of points. $15 is not as high, relatively speaking, in New York as in lower cost places. Also, a statewide minimum would probably work better that a city-wide minimum since alternative places to shop would be reduced. Of course, that argument would also apply to a national minimum wage over a state one.

In a way it’s good that cities and states are getting more aggressive on the minimum wage than the country at large. They will be a laboratory to test whether I’m right or whether the liberal politicians are right. A state mistake would be bad, but not as bad as a national mistake. The failure of high minimum wages in local experiments might just create some good teaching moments.

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