It has been said that doing what sounds good often gets in the way of doing what works. There is perhaps no better example of this than State Rep. Tom Anzelc’s well-intentioned attempt to raise Minnesota’s minimum wage via constitutional amendment, a proposal he floated last Wednesday.
Anzelc is right to be deeply concerned about the fact that Minnesotans’ real median household incomes are dropping, income inequality is growing and that there is too little opportunity for those in our state struggling in this anemic economic recovery. But his medicine – arbitrarily raising wages by government fiat – would only make the malady worse.
Contrary to prevailing DFL demagoguery, opposition to minimum-wage laws is not grounded in the desire to see the rich richer and the poor poorer. It stems from a basic, common-sense understanding that higher minimum wages set by government instead of the free market limit job opportunities for workers in need of them most and harm the economy as a whole.
Someone has to pay for it
Politicians too often forget what every economist understands: Increasing the minimum wage and therefore the cost of labor is not a free lunch; someone has to pay for it. Some assume employers simply absorb government-imposed increased labor costs in the form of lower profits. But this is not an option for most small businesses and industries that operate in a world of razor-thin margins. What decades of economic research shows is that their bottom lines demand that they react by cutting hiring, reducing work hours and benefits and, if possible, raising prices — all of which hurt Minnesota workers and its economy.
Analyzing nearly five decades of research on the minimum wage, the congressional Joint Economic Committee in 1995 released a study finding, in addition to less employment, some additional consequences of minimum wage laws: longer unemployment for low-paid workers; greater turnover; fewer fringe benefits and greater incentives for labor saving electronic and mechanical devices.
A higher minimum wage is not only a bad idea because of the lost wages it would cause due to the elimination of lower paying positions, but, perhaps even more important, because of the loss of vital on-the-job training that would otherwise come with them. Minimum-wage jobs are critical, usually short-term vehicles for less skilled workers to enter into the work force and acquire basic skills from which to build upon and advance. That’s why two out of every three minimum-wage earners are making more within a year of minimum-wage employment.
How much does it help?
And raising the minimum wage may not be the powerful poverty-fighting weapon many think it is. The study “Will a $9.50 Federal Minimum Wage Really Help the Working Poor?,” conducted three years ago, found that a federal minimum-wage increase to $9.50 per hour would raise incomes of only 11 percent of workers living in poor households.
In North Dakota, the minimum wage is $7.25 an hour, much less than the Minnesota minimum Mr. Anzelc would like. And yet in some parts of the Rough Rider state, fast-food employees are making $15 an hour because of the area’s surging economy.
There is no question that the take-home pay of hardworking Minnesotans is stagnating. But a minimum-wage hike is not the answer; policies to jumpstart Minnesota’s economy – lower taxes, less regulation and smaller government — are.
Andy Brehm, a Republican, is a corporate attorney in Minneapolis.
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