Groundhog Day for Minimum Wage

At first, we were relieved to find that Pres. Biden’s proposal to include a $15 minimum wage hike in the COVID-19 relief package was just a bad nightmare. But when Californians woke up the other day, the idea was back on track. Unlike Bill Murray, who thanks to the magic of Hollywood, managed to improve his life each time he woke up on Groundhog Day, if progressives get their way, millions of low-skilled Americans will see a grim future ahead.

There are dozens of scholarly studies that show that raising the minimum wage increases unemployment.  The most recent was released earlier this month by the Congressional Budget Office.  It found that raising the federal minimum wage to $15 an hour by 2025 would cost 1.4 million U.S. jobs over the next four years.  But 27 million workers would get a raise and 900,000 people would be lifted out of poverty.  This trade-off might sound like a tough decision for politicians, but it really isn’t.  In fact, it’s an opportunity to double-dip.  Progressive politicians can take credit for the millions of Americans who get raises.  But they also get to score political points by fighting for even larger benefits for those who become unemployed or stay poor.

Take San Francisco, which currently has a minimum wage of $16.07.  A Harvard Business School research paper found that restaurants with low- and mid-level Yelp ratings would eventually be driven out of business.  Their study found that a $1 increase in the minimum wage would lead to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (the median rating on Yelp). The study also found that lower-rated restaurants would increase their prices because of the minimum-wage increase.

As a frequent visitor to San Francisco before the pandemic, I would have to look hard to find a low-priced restaurant to take a lunchbreak with colleagues. Lunchtime eateries downtown are now mostly self-serve.  You reach into a fridge, grab a pre-made sandwich or a couple of wrapped sushi rolls, off you go to the lone cashier, then back to the office.  After the pandemic, it wouldn’t surprise me if low-priced sit-down restaurants, along with their jobs, are extinct. The restaurant workers who didn’t flee the city  would have to survive on government assistance.  City politicians would then vow to “do more.”

According to the Public Policy Institute of California, about one-third of Californians earn less than $15 an hour, but not much less.  The state’s current minimum wage is $14 an hour.  PPIC also calculates that slightly more than 36 percent of the state’s residents are at or near the poverty level.  The obvious conclusion: the statewide minimum wage (higher in many cities), did little, if anything, to reduce poverty.  The state’s unemployment rate remains persistently above the nation’s average. Income inequality, according to PPIC, has risen substantially over the past several decades, with “little progress over the long term for the lowest-income families.”

No one has to do a deep data dive to figure out that Pres. Biden’s plan to make America California again won’t end well for the nation. Even the Los Angeles Times has doubts.  “California is emerging as the de facto policy think tank of the Biden-Harris administration,” writes the Times, but the state “struggles with surging COVID-19 infections, a safety net frayed by the pandemic’s toll, crushing housing costs and wildfires, all fueling an exodus of residents.”

Rowena Itchon is senior vice president of the Pacific Research Institute.

This article was originally published by the Pacific Research Institute.

Comments

  1. Higher wage earners are rejoicing as the impact on their wages will be fantastic in the next 10 to 20 years. Our elected officials never look at the unintended consequences that higher wages for everyone will benefit the rich more than those on minimum wage.

    The new minimum wage crusade will result in ALL wages increasing. Cost Of Living Adjustments (COLA) to wages favors the well paid: For example: a 3% COLA adjustment for someone making $100K will result in their compensation being almost $135K in 10 years (a $35K gain), but for someone making $30K, their compensation will be $40K in 10 years (a 10K gain). The unintended consequence of raising the minimum wage would be $25K more for the well compensated as the financially challenged continue to fall further behind.

    Throwing money as a band aid to cover the rising costs for everyone buys votes for reelection, but does not heal the wound of WHY the costs are rising.

  2. This is the effect of no moral compass and a failed education system.

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