CBO: $15 minimum wage would kill at least 1.3 million jobs- potentially 3.7 million

Updated: Aug 20, 2019

While making my rounds on Twitter last night I ran across this post from Congresswoman Ilhan Omar.





I'll start where she is right. Let's go over the potential "good" news from the report.


The CBO estimates that the wages of 17 million people would go up if the minimum wage were to be raised to $15 by 2025. It also points out the "potential" 10 million people that might be indirectly affected by the raise. That number takes into account those who are making at or just above $15 right now, who will likely see a bump in hourly pay with the wage hike.


The study also estimates that this will bring 1.3 million people out of poverty.





Here's where I start the bad news


Omar's statement of "People make more money when you raise their wages" is partially correct. The correct statement would be "People that don't get fired, and keep the same amount of hours make more money when you raise their wages."


In her tweet, Omar is @replying a tweet that mentions all of the potentially good effects of the wage hike. Of course, this tweet adds the number of directly affected and potentially indirectly affected workers together for a total of 27 million people who will see a raise with this law. It then conveniently suggests that the CBO's estimate of 1.3 newly unemployed is over-estimated.


It must be nice to always assume that the numbers you like will hit the best of your estimates, and the numbers you don't like will hit the lowest end of the estimates.


The study goes on to mention that the raise in wages would likely be offset because "All consumers would pay higher prices." In fact, the study suggests that those at the poverty line would only see a "real family income" increase of 5%. Those at or below poverty would see a total of $8 billion more per year. It also says that those at or three times above the poverty level (lower middle class) would see a reduction in real family income by $16 billion per year. This is accounted for in a little-to-no change in wages, but a higher price for consumer goods.


Unemployment


The most striking figure in the study is in the likely number of newly unemployed, or "those who would have otherwise been employed under the current law."


The CBO finds a median reduction in weekly employment of 1.3 million people. That estimate on the high end is 3.7 million. To restate that point- We will see a 5% raise in real family income for those currently in poverty, but we will see 1.3 million newly unemployed people.


What groups are likely to lose employment? Teens, minorities, and the elderly. What we've always known about the minimum wage is this- If you set the price higher than the value of someones labor, that person will not be hired. In New Jersey, we're even seeing a push for a new law giving tax breaks to businesses for hiring teens. They've already noticed that the employment numbers have suffered with their higher wage laws.


The minimum wage was a law created to keep uneducated and inexperienced people out of the job market. Unions have used this law for decades to keep their competition from under-cutting their prices. If you're a Union, and you guarantee $20 an hour to your members, what's the most dangerous thing in the world? People who can do the same job for less money.


If you are a business owner, barely getting by, you are less likely to take a chance on an inexperienced person. That's just plain economics. Right now, companies like Walmart and McDonald's operate on razor thin profit margins. A major increase in their labor costs will cause a shift, like we are already seeing, to more automated checkout lanes or cashiers. The people that you do hire will be a risk. You might not make the $15 you are required to pay that person ever hour.





Why only a 5% bump in "Real family income?"


As we've seen in cities like Seattle, and New York, businesses are likely to keep less people "on the floor" at lower paying jobs. This would result in each employee receiving a lower number of hours. In Seattle, real wages of minimum wage employees actually decreased by $200 per month after the new minimum wage law went into effect.


My main point


Would you agree that there is a difference in the business models and circumstances between Walmart, and your local retail store? Maybe there's a difference in the profit margins between McDonald's and your towns local restaurant. Across all industries, different companies have vastly different profit margins. Across each industry, each company has very different expenses.


Can you admit that most businesses would not be able to pay $75 an hour? Of course you can. Most people react with an *eye roll* or a cry of "Straw-man!" when I bring up this fact, but there is a very important realization in the answer to this question. Of course businesses can't afford $75 per hour, but in admitting that, you are also admitting that there is in fact a number that businesses can't afford to pay. In the admittance of this fact, you must also admit that that number is different for many businesses. If they can't afford $75, how can we decide that every business in the US can afford $15? Have you done the proper research on all 28 million businesses to make sure this is a possibility? This is the problem with saying "All businesses can afford to pay $15 an hour." Some can, some cannot. Most will have to raise prices and/or cut hours to make this a possibility.


You can set a number on the minimum wage, but that by no means proves that each employee will produce more than $15 an hour in value. You can not apply an arbitrary number on value that all laborers will be able to create. Since you cannot do this, you will force low skilled laborers out of the workforce, or you will force all businesses to raise their prices. More than likely it will be a combination of the two.


The only solution is to raise your value in the workforce. Your actual value, not the forced value by law. It's likely that by 2025, people will be calling for a $20 per hour minimum. As usual, the wages will go up, and the cost of living will go up, leaving those making the minimum wage in the exact same (or worse) position they are in now.


If raising the minimum wage were a solution for the poor, it would have worked the first time they did it in 1937.




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Nashville, TN

email: nate@goodmorningliberty.us