A $15 Minimum Wage Would Drown Middle America
It had been in the works for a long while, and last week the House finally did it. Democrats passed legislation that would raise the national minimum wage to $15 an hour over the next six years. Of course, no one expects the bill to pass the Republican-controlled Senate, but its success in the House means that doubling the minimum wage is now a pillar of the Democratic platform. Of course, Democrats claim the bill tackles inequality, but it will actually do the exact opposite of that. And the small town worker and the poor urbanite will be the ones who suffer.
It’s only over the past few years that Democrats have really dug in their heels on a high national minimum wage. Back in 2015, when the #FightFor15 movement first emerged, even the Obama administration recognized that such a high wage floor could do damage. If the goal was indeed a “living wage” that lifts workers out of poverty, as Obama’s labor secretary noted, then wage policy had to account for cost of living differences among the various parts of the United States.
High federal wages could very well be dangerous in some parts of the country—something Hillary Clinton acknowledged in a 2015 speech at New York University’s Stern School of Business. “Let’s remember the cost of living is different in Manhattan than in Little Rock and many other places,” she said. Indeed, Arkansas’ minimum wage is lower than in New York’s, but lower costs of living there also translate into more purchasing power.
Low costs of living reflect smaller economies, however, which means the typical business in Arkansas has little power to increase workers’ wages. Precious few companies would be able to hire in a low-skill labor market after a significant minimum wage hike. When machinery is an option, such high labor costs would make low-skill human workers too expensive. And those same workers aren’t educated or trained enough to work at high-paying business.
Herein is yet another huge problem for Middle America. Already it’s suffering from a skills gap relative to its big city counterparts. Educated Americans continue to migrate to higher-income, higher-amenity areas, and they’re taking their skills and productivity with them. Meanwhile, the rest of the country is struggling to keep up, because less education and fewer skills mean less productivity, at least in the material sense. It’s what keeps small-town economies small. And with less money flowing through these areas, both wages and costs of living stay low.
Cities that already have high minimum wages are also those with more highly educated citizens. Indeed, it’s no coincidence that the highest state/territory minimum wage in the country is Washington, D.C.—which also has the highest rate of bachelor’s degrees. Seattle has garnered perhaps the most notoriety for experimenting with high minimum wages, jumping four years ago from $9.47 an hour to $15 (for bigger companies, it was $16). So it goes. Yet Seattle’s population is also exceptionally educated and thus better equipped to handle the hike.
But even within educated, high-income areas, evidence suggests that jacked-up minimum wages are a blow to the poor. In their second review of Seattle’s law, economists from the University of Washington found that it had created a barrier to entry for low-income workers.
Before the minimum wage law took effect, those who already worked a lot were somewhat more likely to continue working as usual and earn some more income—an average increase of $84 a month. But those who only worked part-time were put in a riskier position: they were just as likely to make less money as they were to make more. And those who were out of work before the law took effect found it much more difficult to find a job afterward. Taking all three groups into account, Seattle workers lost an average of $74 per month. In short, high minimum wage laws ended up hurting both workers who had little experience and those who had been out of a job for some time.
For many low-income regions, this is especially bad news. As automation grows and labor becomes more skill-based, the Rust Belt, Deep South, and other small economies are bound to suffer from the ever-widening skills gap that separates them from more urban labor markets. Without training or experience in the high-skill fields that might overtake low-skill work in their area, they’re similar to the third group in the Seattle study—outsiders seeking entry into the labor force.
In short, for these low-income areas, where job displacement is a growing concern, a policy that stifles job creation and restricts entry into different labor markets is the last thing workers need. If an educated city with a stable economy can experience a net loss in wages because it shuts out workers with an artificially high wage floor, regions with vulnerable economies and low-skill workers are going to struggle far more.
Letting localities decide for themselves is the answer. Seven states, all relatively prosperous, have already passed $15 minimum wage laws, and 30 states have increased their minimum wages over the last five years. If a national law was really needed, Congress could pass something like PHASE in $15, a bill that 15 Democrats introduced in April, which would diversify wage floors by region.
Policies should be national if all Americans would benefit from playing by the same rules. But Little Rock is not Manhattan and it likely never will be. That’s by no means a bad thing, and people who choose to live there shouldn’t be punished for it. But they will be if the Democrats get their way. Middle America’s small communities are already struggling to tread water. A high federal minimum wage will only cause them to drown.
John Kristof is a fiscal policy analyst based in Indianapolis and a contributor for Young Voices. Follow him on Twitter.