The minimum wage is one of those public policy questions where the two contrasting ways of looking at the world stand in all their irreconcilable glory. On one side, progressives have gotten up a huge head of steam lately for their proposals to more-than-double the current federal minimum wage to $15. Bernie Sanders is a leading proponent. See also San Francisco, Seattle, and of course my own home town of New York (the "Fight for 15!"). (Hillary Clinton advocated a minimum wage of $12 at one of the debates back in November, although it's not clear why if $12 is good $15 wouldn't be better. Is there some magic crystal ball that tells you when you have crossed an invisible line and an increase suddenly stops being beneficial and starts harming the intended beneficiaries? Hey, how about $100?) Whether $12 or $15, the idea is that it's basically free money, much of it going to the poor or less-well-off, with no downside. Over on the other side of the ideological spectrum, conservative pundits and think tanks see a huge downside for young and low-skill workers getting priced out of their first toe-hold in the job market. The progressives accuse these writers of merely providing cover for rich people and business interests trying to hold down their wage costs on the backs of the poor.
The end result is that the two sides come up with exactly opposite policy prescriptions and promote their own vision as the best way to help poor and low income people. But both can't be right. If your goal is that poor and low-income people should have the best possible shot at success in life, then which is it -- raise the minimum wage, or not (or lower it, or eliminate it)?
In January I went to a program on the minimum wage put on by the Manhattan Institute. The main presenter was a guy named Douglas Holtz-Eakin, an economist who is current head of something called American Action Forum and has a long list of former positions that include director of the CBO and advisor to the McCain campaign. Here is a link to some of Holtz-Eakin's research on the effects of the minimum wage. Holtz-Eakin pointed out that increases in the minimum wage lead to wage increases for some but unemployment for others. However, the large majority of minimum wage workers are in non-poor households (where they are second and third earners), so much of the "benefit" from a minimum wage increase goes to the non-poor, while much of the harm goes to those at the very bottom, particularly those trying to get their first jobs. You might agree or disagree with Mr. Holtz-Eakin, but it's hard to see him as a shill for business interests trying to save wage costs, as opposed to a serious guy trying to see what would actually work best for the poor.
Is having the minimum wage price you out of the labor market actually a serious problem for anybody? An editorial in today's New York Times has some data that ought to be rather troubling for the advocates of big minimum wage increases. Of course, the New York Times itself is one of those advocates; but somehow they don't recognize or mention the significance of the data they cite to that debate. (Why am I not surprised?)
The title of the Times editorial is "The Crisis of Minority Unemployment." The principal data on which the editorial relies comes from a recent (January 2016) report from something called the Great Cities Institute of the University of Illinois at Chicago. The title of the report is "Lost: The Crisis Of Jobless and Out Of School Teens and Young Adults In Chicago, Illinois, and the U.S." (pdf) The Times summarizes the most troubling finding of the report as follows:
[The Great Cities Institute report] found that in Los Angeles and New York City about 30 percent of 20- to 24-year-old black men were out of work and out of school in 2014. The situation is even more extreme in Chicago, where nearly half of black men in this age group were neither working nor in school; the rate was 20 percent for Hispanic men and 10 percent for white men in the same age group.
The data are not broken out for other cities. But one would have to think that if nearly half of black male 20 to 24-year-olds in Chicago are neither in school nor working, that the numbers would have to be even worse for the even-more-serious basket-case cities like Detroit, Baltimore and St. Louis.
Now, what is the explanation for these huge figures for idleness of young black men, other than that they have been priced out of the labor market by the minimum wage? There may be some explanations that can explain parts of the phenomenon, but, I would suggest, not the massive numbers revealed in this report. (Hypotheses could include: (1) some could be engaged in off-the-books and/or illegal money-making activities not reflected in government data; (2) some could be receiving sufficient government benefits that they don't see a need to work even though jobs are available at the current minimum wage and even above, or accepting work could cause their benefits to decrease.)
In any event, we know that the New York Times believes that the correct explanation is that these young people have been priced out of the labor market. How do we know that? Because the Times uses this editorial to advocate for a government program to subsidize employers to hire the young people in question:
[T]here are strategies, which Congress has rejected, that could help rescue a generation of young men from failure and oblivion. Among these is the employment subsidy program that was passed as part of the Recovery Act in 2009. It created more than 260,000 temporary jobs for young people and adults. Governors and employers were ecstatic. But Republicans in Congress denounced the program as useless a year later and blocked proposals that would have extended it.
Oh, those evil Republicans! But I thought, New York Times, that employers were indifferent to the cost of wages for low-level employees, at least up to the level of $15 per hour. What am I missing? It seems that that principle applies only in the absence of an opportunity to create a new government program and employ a bunch more bureaucrats to administer it.
So should we all get behind some kind of government subsidy program so that young black men can get their first jobs at a decent wage even as employers pay little? Can you see any flaws in this idea? Let me suggest a couple: (1) The subsidy becomes an effective additional marginal tax on any wage increases the young men may earn, effectively dragging down their ability to see any return for themselves if they work hard and succeed. (2) Some group of government-favored and government-connected employers get big checks to have some numbers of young black men working on their premises. Without doubt they will game it to their benefit. Certainly, it will be to their advantage to keep these young men working, and at low wages, in order to keep the government checks coming.
There are reasons why $1 trillion of annual government anti-poverty spending never reduces poverty by even a single person. The purpose of every government program is to continue and grow the program; and that requires that the supposed beneficiaries remain forever in their dependent status. This program would be no different because it can't be any different.
Sorry, but there is no better option than letting the market set a price for labor at which the market clears. That may mean that young black men get their first toe-hold at a very low level, but it is by far the best way for them to have the maximum opportunity to get started early, to move up quickly, and to avoid dependency.