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No, Wages Are Not Rising Because of Minimum Wage Laws

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Unread 08.13.19, 07:06 PM
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No, Wages Are Not Rising Because of Minimum Wage Laws

On 08.13.19 07:32 AM posted by Adam Michel

Before lawmakers left for August recess, the Democrat-controlledHouse votedto raise the federal minimum wage to $15 an hour.

Such a move would backfire in a major way if passed into law. It would hurt lower-skilled individuals the most, including teenagers, immigrants, and those without a high school degree. And women, who hold more low-wage jobs than men, would be hurt the most, accounting for more than 60% of the resulting lay-offs.

The push for new wage mandates comes at a puzzlingtime: We are in the midst of a record economic expansion in which workers inlower-wage jobs are seeing their wages grow faster than many high-wage workers.

This is no mere blip on the screen. It’s an ongoingtrend, as the Julyjobs report shows.

Average wage growth has been above 3% for the last 11straight months. Meanwhile, the lowest 10th percentile of wage earners ( peoplemaking about $12 an hour) have benefited from more than twice that gain inwages—a 6.6% wage increase over just the last year. That’s equivalent to aroughly $1,500 raise for someone earning less than $25,000 a year.

Some are now claiming that minimum wage increases at the state level are responsible. One short study, which was repeated in the pages of The Washington Post, shows that states with minimum wage hikes since 2013 have seen faster wage growth for low-wage workers.

Not so fast. There are some serious problems with thisstudy.

For one, many states that increased their minimum wage also instituted pro-growth reforms during the same time. New York, for example, improved its business climate in 2014 by cutting its corporate tax to its lowest rate since the 1960s. Missouri; Arizona; Washington, D.C.; Minnesota; and Maine are all among the states that cut taxes during this time period while also raising their minimum wage.

There is now ampleevidence that pro-growth policies, like business tax cuts, fuelwage growth and new hiring. Research on the minimum wage tells the oppositestory: one of job loss and wage stagnation.

The economic fact is that when the government forces businesses to pay an employee a mandated hourly wage, businesses are left with few options: Cut hours, lay off workers, or reduce benefits—or some combination of these.

Most often, businesses are forced to cut jobs, which is why the Congressional Budget Office found that raising the minimum wage to $15 an hour could lead to over 3.7 million workers losing their jobs.

A 2011 studyfrom The Heritage Foundation painted an even bleaker picture, finding that thispolicy would force 7 million Americans out of work.

Economists havedocumented the significant negative impact of Seattle’s decision to raise the minimum wage to$13 an hour. That decision resulted in a drop in employment across the city.Workers who retained their jobs ended up working fewer hours, resulting in a netincome loss.

A similar trendresulted from Illinois’ 2002 minimum wage hike.

If history is any guide, minimum wage increases lead to slower rather than faster wage growth.

A 2015 study found that workers in states with small increases in the minimum wage from 2005-2008 ended up with lower wages than they would have had if the state never increased its minimum wage. The minimum wage hike achieved the exact opposite of its goal.

This happens, in part, because minimum wages shrinkthe number of jobs available, meaning there are equally qualified workers competingfor fewer jobs. Workers who are lucky enough to retain their job see slowerwage growth than they would have otherwise because the job market is full ofpeople who can easily replace them.

Minimum wages also have beenshown to incentivizelow-income youth to drop out of school, which lowers their future earnings. And,they cut off employment opportunities entirely for workers who cannot yetproduce the minimum wage.

At $15 per hour, workersmust be able to produce upward of $35,000 per year. That’s a high bar foranyone just starting out and especially high for teenagers trying to get theirfirst job, perhaps to save for college.

A study on the long-runeffects of minimum wages found that the longer individuals were exposed tohigher minimum wages at young ages, the less they worked and earned by theirlate 20s. The study also noted that “the adverse longer-run effects arestronger for blacks.”

It may be true that some minimum wage hikes raise wagesfor a few lucky workers, but it comes at the expense of layoffs and shorterhours for others.

Workers have much more togain from sustainable wage increases, and so do employers and customers, sinceboth groups want better performance from workers.

Our economy is currently booming, and a key feature ofthat is the strong job market. There are now over a millionmore jobs available than people looking for work. Employers areoffering wageincreases, bonuses,new training opportunities, and betterbenefits to retain and upskill their best employees.

Employers are competing for labor. That puts workersin the driver’s seat, allowing them to demand higher wages and better benefits.

Moreover, productivity is a major leverage point for workers. When workers are more productive, they bring more value to the company and can therefore demand higher wages.

The current economic environment has benefited from twothings: the 2017 tax cuts and ongoing deregulation. These policies are makingAmerican workers more productive.

The 2017 tax cuts significantly lowered the cost of newinvestment by cutting the corporate tax rate and allowing companies to writeoff the full cost of many new investments from their taxes. Now, companies havea greater incentive to re-invest their profits into the tools and researchworkers need to be more productive employees.

And, as workers become more valuable through increasedproductivity, they are empowered to demand higher wages.

But these tax cuts need to be made permanent to ensure workers continue to experience benefits they currently enjoy.

The United States’ record-long economic expansion hashelped lower-income workers the most, and the whole gamut of pro-growthpolicies have helped prolong the current expansion. These gains are impressivedespite the economic uncertainty exacted by President Donald Trump’s tariffpolicy and our ever-expanding federal debt, which mustbe addressed.

Congress should not tempt the resilience of theAmerican economy by mandating a higher federal minimum wage. Lower-wage workersare feeling a boon like no other in recent memory. The last thing we should dois bring it to a premature end.

The post No, Wages Are Not Rising Because of Minimum Wage Laws appeared first on The Daily Signal.

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