Should Low-Skill Workers Eat Cake?

Yesterday, the governors of California and New York signed legislation to raise their states’ minimum wage over the next few years to $15 an hour throughout California and much of New York. Similar proposals are percolating in other state and local governments, and Democratic presidential candidate Bernie Sanders has called for a national minimum wage of $15/hour.

Predictably, critics of raising the minimum wage are arguing that the higher wage floor will hurt employment for low-skill workers, the very people the wage floor is intended to help. A worker will be employed only if the value of his output is greater than the cost of employing him—a cost that includes wages, employer payroll taxes (e.g., Social Security, Medicare, unemployment insurance), training and outfitting costs, the new health care mandate and other benefits, etc. According to these opponents, the higher wage floor will reduce employment for low-skill workers and encourage employers to find non-labor ways to accomplish low-skill tasks (e.g., ATM machines, self-serve gas pumps, vending machines, automated phone answering systems).

Wage-increase supporters dismiss this concern, claiming there’s no proof that a higher wage floor hurts employment. A very large body of empirical research indicates otherwise, however, with the negative effects falling mainly on workers below age 25 (which isn’t surprising, as 77% of workers earning the federal minimum wage are below age 25, and they have few demonstrated work skills). Wage-increase supporters can argue the research isn’t unanimous, but given the one-sidedness of the extensive empirical evidence, that argument sounds a bit like climate change denial—if not creation science.

More thoughtful wage-increase supporters have begun offering a different argument: Yes, they concede, raising the minimum wage can hurt low-skill employment. But that harm is a worthwhile tradeoff for better wages for the remaining low-skill work: some workers may lose their jobs or some work hours, but others will get a raise.

This argument is important and interesting—in a Marie Antoinette* sort of way.

Consider this snippet from a recent Washington Post “Wonkblog” post, “The $15 Minimum Wage Sweeping the Nation Might Kill Jobs—And That’s Okay”:

“Why shouldn’t we in fact accept job loss?” asks New School economics and urban policy professor David Howell, who’s about to publish a white paper on the subject. “What’s so bad about getting rid of crappy jobs, forcing employers to upgrade, and having a serious program to compensate anyone who is in the slightest way harmed by that?”

“The problem with having a criterion of ‘no job loss’ is that it guarantees that the minimum wage will always be at a level so low that it won’t come close to achieving [a] living wage standard,” Howell says.

… “It could be that [low-skill workers] spend more time unemployed, but their income is higher overall,” says David Cooper, an economist with the Economic Policy Institute. “If you were to tell me I could work fewer hours, and make as much or more than I could have previously, that would be okay.”

Cooper still thinks there’s a lot more research to be done to understand how higher minimum wages affect the bottom of the labor market. He does think the risk of job loss is worth factoring into the decision of where to set the wage floor. But he also agrees that it’s worth forging into those uncharted waters to see what might await.

This thinking raises two questions: who decides what a “crappy” job is, and who decides what particular tradeoff between less employment and a higher wage floor is “okay”? Howell says the decider is “we,” but it’s unclear who “we” is and what qualifies him/her to make that decision for all workers and employers. Cooper says the decider should be he, but what entitles Cooper to make that decision for everyone? Of course, the decider will be politicians, but are their decisions really made out of concern and understanding for the well-being of low-skill workers (not to mention all other people)?

Howell and (apparently) Cooper think such decisions are justified because they’d ensure that every worker earns a “living wage.” Beyond the obvious problem that “a living wage” is a nonsensical term—a living is provided by income, not rate of income—there likely are plenty of workers who would trade their labor for less than whatever Howell and Cooper stipulate is an acceptable wage: pre-teens who will babysit for Mall money, teenagers who want to buy their first car, college students who want an internship, first-time workers who are willing to “pay their dues” in pursuit of higher ambitions, young workers who have low living costs, people who want to work for some high-minded cause, family members who want to make a little money while helping an entrepreneurial relative, seniors who want some extra cash (and responsibility), and so forth.

Howell and Cooper would reply that such workers should be assisted by social programs to help “anyone who is in the slightest way harmed by” their stipulated wage floor. But students who want opportunity-providing internships, or first-time workers who want to build and demonstrate work skills, or relatives who want to lend a hand in the family business in return for a little money, or seniors who want a little extra cash don’t want a handout and some vocational training—they want a job.

One of the great things about free labor markets is that, because employment is voluntary, each worker can set his own wage floor. That’s why few workers—especially full-time workers—work for the minimum wage: they demand higher compensation, though each makes his or her own tradeoff between wage demands and employment.

Of course, some workers do work for the minimum wage, and many of them think that wage is lousy. But what’s even lousier is not being able to work for the minimum wage, and not being able to gain the work experience that would help them move on to better-paying jobs. That’s why it’s hard to accept the idea that workers would be better off if they were prohibited from deciding those tradeoffs for themselves, and instead have Cooper or “we” decide it for all of them.

And that’s why this argument sounds an awful lot like “Let them eat cake”: Howell and Cooper believe they–or politicians–should stipulate the minimum that each and every worker should receive for his or her labor–even if some of those workers would have accepted less, and even if some (and perhaps many) of those workers end up getting nothing. Though Howell and Cooper undoubtedly are motivated by noble intentions, it’s hard to see how their idea is all that noble.

* In fairness to Marie Antoinette, the “Let them eat cake!” tale is almost certainly apocryphal.