Thoughts on the Minimum Wage

The California Economic Summit published a piece reacting to what President Obama’s push to raise the minimum wage from $7.25 an hour to $9 an hour would mean for California. There were a number of economists quoted who made some true statements – but they all missed the point.

First, here is some of what they said:

“Stephen Levy, Director and Senior Economist of the Center for Continuing Study of the California Economy: “”The minimum wage increase will not have a huge impact on the overall economy. There are probably some jobs that would not be filled at a higher minimum wage. There really are conflicting studies on that.”

“Levy says a minimum wage increase would be the least of California’s worries.

“For California, the minimum wage increase is a less important economic issue than, say, the sequester or immigration reform or funding for investments in R&D,” Levy said. “To make it a big deal about the economy would be a mistake.”

“Christopher Thornberg, founding partner at Beacon Economics, said that the discussion is driven by the extreme proponents and opponents.

“You hear lots of, I think, really aggressive points of view on both sides of the fence, and they’re both highly exaggerating the situation,” Thornberg said. “On one side of the fence, you have those in favor of raising it that claim it’s such a wonderful thing. You even have some clowns at Berkeley that have their so-called papers, where some way or another raising the minimum wage will increase employment, which begs the question if it’s that easy, why don’t we raise it to $1000 an hour? It’s preposterous how they twist it out of proportion.

“On the other side of the fence, those against it scream it will destroy small businesses and make unemployment rates go sky high. I don’t think it’s going to destroy businesses by any stretch of the imagination. If going from eight to nine dollars an hour bankrupts you, you have other problems,” Thornberg said.

These quotes, and the piece, are all about how the change in minimum wage will impact California’s economic statistics.  Levy and Thornberg are correct.  The impact on the state’s data will be small, because the increase is not particularly large, and unless indexed, it is temporary, as inflation will effectively drive it back down.

All this is completely beside the point.  The appropriate question is how will the proposed change impact Californians?

Most Californian’s will not notice any impact.  Their wages are above the minimum wage, and the price impacts will be small.  A few Californians will receive a pay raise.  A very few could suffer personal tragedies, and these are the people we should be thinking about.

The people displaced by a minimum wage increase will be disproportionally young and minority, because they are disproportionally the ones receiving the minimum wage.  They are already suffering way too much. For example, as of January, the unemployment rate for African Americans 16 to 19 was 37.8 percent.  For African American men over 20, the unemployment rate was 13.4 percent, while African American women had a 12.3 percent unemployment rate.

It’s a big event when an African American teenager loses a job.  A job loss could change the entire trajectory of his life.  It increases the probabilities of drug abuse, crime, prison, and teenage pregnancy.

Thornberg is right.  The change is unlikely to destroy any businesses.  It is, however, likely to destroy some lives.

We spend a lot of money on social programs for young minorities, but the best social program is a job.  It makes absolutely no sense to implement a policy that puts even one at increased risk.

This piece appeared previously in the Orange County Register

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