Higher minimum wage leads to fewer opportunity

Donna Martinez Contributing columnist

March 26, 2014

When I took the job as a movie theater cashier, I had no idea my first excursion into the working world would deliver such valuable life lessons. I learned it’s not a good idea to work for someone who tells you to protect the cash register at all costs and hands you a baseball bat to fend off robbers. I learned burnt popcorn makes me nauseous. And I learned I didn’t like working for minimum wage.

No one does.

But I had a plan to snag the concession supervisor’s job. It paid a dollar an hour more for handling scheduling, reconciling cash in the till with ticket sales, and dealing with unhappy customers whose stomachs reacted to the popcorn the same way mine did. My path was clear: Take on more responsibility, and I would earn more money.

That fundamental truth applied when I was 16, and it applies today. But progressives reject this truth and instead seek to impose a federal minimum wage hike from $7.25 to $10.10 per hour. Led by President Obama, progressives argue entry-level work is worth more — because they want entry-level workers to make more. That appeals to emotion, but it is terrible policy. By forcing business to pay a higher wage to some, government will also arbitrarily turn others into losers — ushers who won’t be hired, concession supervisors who won’t get a raise, and moviegoers who will pay more for popcorn.

The Congressional Budget Office analyzed the impact of a minimum wage hike to $10.10 per hour and concluded in part: “The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate.”

However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

More than 500 economists — including a dozen who teach at North Carolina public and private universities — recently signed a “statement to federal policy makers” taking on the notion that a wage hike tackles poverty:

“As economists, we understand the fragile nature of this recovery and the dire financial realities of the nearly 50 million Americans living in poverty. To alleviate these burdens for families and improve our local, regional, and national economies, we need a mix of solutions that encourage employment, business creation, and boost earnings rather than across-the-board mandates that raise the cost of labor.”

We ultimately hurt the poor when the cost of delivering a product or service goes up with no corresponding increase in worker productivity or value. Nor do we help the poor by ignoring research that shows which economic policies positively influence economic growth and which don’t. If we expect businesses to create opportunities for entry-level workers to step up to more responsibility and higher pay, we must foster economic growth.

Last fall, John Locke Foundation President John Hood surveyed two decades of scholarly work on state-level economic growth. As he explained, the results are extremely unfriendly to the Left’s view, but “the results were very friendly to the Right’s theory of economic growth — negative effects of overall taxes in 63 percent of studies, 67 percent for corporate or business taxes, 69 percent for marginal income tax rates, 62 percent for sales taxes, 68 percent for regulation in some form or the other.”

Still, economic policy alone can’t alleviate poverty. Let’s speak boldly but compassionately about the negative economic and social impact of having children out of wedlock and of failing to earn a high school diploma.

Getting these life decisions right greatly reduces the chances of living in poverty. We must also pour private resources into helping the vulnerable, including people with addictions. Those of us who champion a limited role for government must lead the efforts of private groups, charities, and churches.

When we think paying a higher minimum wage is the right path to economic security, we’re just as misguided as the theater manager who thinks giving a box office cashier a baseball bat is the right path to personal safety.

Donna Martinez co-hosts Carolina Journal Radio, a project of the John Locke Foundation.