The Minimum Wage Myth

• Raising the minimum wage reduces job opportunities for the least skilled workers.
• Minimum wage severs the relationship between employers and employees and pays people not according to their value and skills, but according to what someone else says employees should be paid.
• The most effective way to reduce poverty is by attacking root causes and by expanding economic and educational opportunity for those most in need.

It’s a sad story that we hear all too often.  A struggling young mother, Maria is working two jobs but is still unable to make ends meet for herself and her two young children in North Carolina.  Maria works long hours at a job that pays the minimum wage, $7.25 an hour.  It simply doesn’t provide enough to keep a household going. Worse yet, the combination of a low-level education and skills limits Maria’s employment prospects to service industry jobs, marked by low salaries, long hours and high turnover.

Doing More Harm Than Good?

The most common response to this problem is to raise the minimum wage. People need to be paid enough to meet their needs, say minimum wage advocates from the left who have made raising the minimum wage law in states and cities a priority for years.

It’s a feel-good response that enables supporters to signal their alleged compassion for low-income workers, but, it intrudes on voluntary labor agreements and harms the very people its advocates claim to be helping.

Imagine that Maria’s state increases its minimum wage to $15 an hour. Unfortunately, her employer can’t afford to pay that much for her position, so they fire Maria and instead replace her with technology that is cheaper. And because the higher minimum wage means employers will demand less low-skill labor, Maria can’t find another job.

Or her employer cuts back on her hours so she ends up earning less; or is forced to eliminate other benefits like vacation time, health benefits, or job training that would lead to a better future.

A minimum wage increase ends up making Maria’s struggles even more difficult than they were before.

 

Minimum Wage Hikes are High on the Left’s Agenda in NC

In recent years, California, Washington, Oregon and the District of Columbia have all increased the minimum wage, as have cities like Seattle, San Francisco, Los Angeles and New York. It is hard to ignore the left’s strong influence in all these areas.  It’s safe to say if the left had its way, the minimum wage would be increased everywhere. Advocates believe it’s the best way to ensure individuals receive a fair wage to meet their basic needs.

It’s a view that’s held by many on the left in North Carolina as well. Allison Freyer, the Director of the Worker’s Rights Project at the NC Justice Center, says that raising the minimum wage is good for families and good for businesses. Freyer writes:

Almost two million North Carolina workers will benefit from raising the minimum wage. And when families can afford the basics — putting food on the table, gas in the car, and a roof over their heads – their whole community thrives. Higher wages mean more business sales, bigger business profits and a growing local economy. Our elected officials in Congress and in the General Assembly should act now to raise the minimum wage.[i]

During the last legislative session, Democratic lawmakers in North Carolina introduced four different bills to either expand coverage of minimum wage legislation or to increase the minimum wage. Bills include:  S 210 (Living Wage by 2022); HB 474 (raises minimum wage and ties increases to COLA); HB 812 (expands coverage of minimum wage regulations to agricultural and domestic workers) and SB 174 (raises minimum wage to $15 over five years, and among other things also adds mandatory paid sick and medical leave).

By far the most significant of these bills was SB 174, titled the Economic Security Act of 2017. The bill, introduced by Sen. Angela Bryant (D- Halifax, Nash, Vance, Warren and Wilson), Valerie Foushee (D-Orange and Chatham) and Terry Van Duyn (D-Buncombe) was written to not only increase the minimum wage but to also provide a number of job protections the left has been working to secure for years. In addition to those just mentioned, the bill also requires employers to pay women the same pay as men for the same work, repeals North Carolina’s longstanding ban on collective bargaining for unions representing government employees, mandates paid sick and family leave for employees, reinstates the Earned Income Tax Credit and bans government agencies from asking about an applicant’s criminal record until a conditional offer of employment has been made.

At a press conference to introduce the legislation, Sen. Bryant underscored the primary purpose of the bill.  Bryant said:

“We want the people in our state to both survive and thrive, and this minimum wage is not even at the survival level.” [ii]

SB 174 is an ambitious bill. It calls for increasing the minimum wage but also includes a laundry list of other workplace provisions, which helped to gather a lot of opposition to the bill.  Supporters were aware of the sentiments.

“I’m not hopeful on minimum wage,” Rep. Pricey Harrison (D- Guilford) told the Raleigh News & Observer. “That’s just something that’s the right thing to do, and we need to keep talking about it.”[iii]

Although SB 174 and other bills to raise the minimum wage failed to pass, be assured the Left will be back pushing for similar legislation when the General Assembly reconvenes.

Increasing the minimum wage has become a hallmark of the progressive left. The benefits are intended to flow not only to wage recipients but to the left as well.  Legislation to raise the minimum wage is often wrapped around larger coordinated initiatives to enable the left to win rural areas and take back state houses and take away power from conservatives at both the state and federal levels. [iv] Raising the minimum wage is only the tip of the spear.

But back to SB 174 and other minimum wage legislation in North Carolina. Increasing the minimum wage may help some individuals in the short term, but there are other problems. There are many compelling reasons to oppose raising the minimum wage to $15 in North Carolina.

Minimum Wage Increase Would be a Job Killer

According to an October 2016 Heritage Foundation Report, raising the minimum wage to $15 an hour in North Carolina would result in the loss of 367,000 jobs by 2021. Wage increases would apply to 40.5 percent of wage and salary workers in the state, and many employers would have to choose between layoffs, reduced hours, cutting back on other job perks, or potentially closing shop.[v]  All these conditions would make it harder for less-experienced and less-skilled employees to find work.  It’s the exact opposite impact the legislation’s backers claim it was supposed to have.

But what about elsewhere. Has the $15 minimum wage had beneficial impacts?
Warnings from Seattle

Seattle was the first major city to adopt a $15 minimum wage. Increases were phased in over several years.  The first phase (2011-2013) raised the wage from $9.47 to $11/hour. The second phase (2013-2015) raised the minimum wage from $13 to $15 an hour.  In analyzing the second phase of wage increases researchers found the new wage increased wages by 3 percent but also reduced the number of low wage jobs by 9 percent. As a result, the total “low wage” payroll lowered low wage employee’s monthly income by $125 a month. [vi]

Commenting on preliminary results from of the National Bureau of Economic Research (NBER) on the subject, the Washington Post said “some employers have not been able to afford the increased minimum. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go.  According to the University of Washington economists who conducted the study, the costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one. The average low-wage worker lost $125 per month because of the minimum wage hike. As you might expect, it’s not the results the Left was looking for.”[vii]

But we don’t need academic studies to demonstrate increases in the minimum wage laws don’t alleviate poverty. The law has other shortcomings that weaken its appeal.

Minimum Wage, Maximum Problems

For starters, a minimum wage targets workers – not just the poor. The law fails to realize that many minimum wage workers may not live in poor households. Another obvious problem with increasing the minimum wage is that when politicians increase the minimum wage, the demand for low-skilled labor falls. Fewer jobs are available. How does that help poor people?

Moreover, as the minimum wage is increased, more people are drawn to apply for these low-skilled positions. For instance, college students from well-off families suddenly find it worth their while to work fast food or retail if it pays $15 an hour. These new entrants can crowd out lower-skilled workers.

Furthermore, North Carolina is a big state with a lot of variety. The cost of living in Charlotte or Raleigh is much higher than it is in Murphy or Manteo.  A state minimum wage law is the same everywhere. Why should the minimum wage in a low-cost area be the same as a high cost area? How many small businesses in rural areas would be able to afford to pay $15 an hour?

For the left, minimum wage laws are merely a stepping stone to an expanded array of social benefits. In many places, minimum wage advocates are replacing the talk of minimum wage laws with “living wage” laws.  These laws are meant to provide enough income to live locally and meet basic needs. Earlier this year the Raleigh City Council adopted a universal living wage policy for its lowest -paid employees.[viii]

The living wage policy is not a legal requirement. It’s far more subjective. But who defines what expenses should be included for an individual to meet basic needs? Everyone can agree that food is a basic need. But how much food? What kind of food? And what about other common household items that may not necessarily be a “basic need”, like cellphones or cable?

Who gets to decide these things, and are we comfortable with politicians and bureaucrats exercising this kind of power over the lives of others?

When people complain that they can’t live and provide for a family on $7.25 an hour, you must remember the minimum wage was never intended to allow low-skilled workers to support a family. The minimum wage does a poor job of raising families out of poverty, because it was not designed to do so.

The biggest drawback with any minimum wage law is that it prohibits individuals from contracting based on agreed terms. If a young person wants to work for $5/hour, why not let them?   If a businessman wants to pay differing wages for lower-skilled labor, why should he be prohibited?  Minimum wage laws take away the right to contract labor at voluntarily agreed upon rates. A $15 an hour minimum wage policy may sound nice; until you understand they decrease the available job opportunities for low-skilled labor, distort prices and incentives and harm the people advocates claim to be helping.

 

A Conservative Response

There is little evidence to support the Left’s claim that increases in the minimum wage help to alleviate poverty. Conservatives have a better response to the question of poverty. It’s grounded in addressing the factors that contribute to the cycle of poverty and helping people get back on their feet. Our response includes reforms in key areas:

Tax Reform. North Carolina’s decision to let a 1 cent sales tax expire in 2011, reduce income taxes in 2013 and implement significant reforms for unemployment insurance have had significant impacts on our state economy. The changes have created tens of thousands of jobs, increased wages by hundreds of millions of dollars, and helped propel budget surpluses. Since January 2012, the unemployment rate has declined from 9.5 percent to the current, 4.1 percent.[ix] Over 524,000 jobs have been added.[x]  Over the past five years, North Carolina’s poverty rate declined from 18 percent to 15.4 percent. [xi] These changes improve the chances for everyone to secure a job and provide for themselves and their families.  The story of how 2013 tax reform improved North Carolina’s economy is documented in the Civitas study, More Jobs, Bigger Paychecks.

Education Reform. A good education is one of the best ways to fight poverty. Unfortunately, too many children are trapped in schools that will fail to provide a quality education. Charter schools and parental choice programs like the Opportunity Scholarship and Parental Education Savings Accounts offer low- and middle-income students the opportunity to get a good education and an education that best fits the child’s needs.

Reducing Barriers to Job Creation. It is easier to create jobs when the regulatory climate is jobs-friendly. In North Carolina the barriers to getting a job and allowing individuals to work have grown far too burdensome.  In 2012, Civitas reported that North Carolina agencies and boards required licenses and other requirements on more than 700 professions. These ranged from doctors and lawyers to barbers and cemetery salespeople.   A review of the regulations shows that for the most part, regulations are superfluous and not related to job performance. They only serve to limit entry into the field by people who need jobs. Unfortunately, in the last five years not much has changed to improve this process.

Family Policy. If families continue to fragment and children are deprived of the resources of two parent families, the struggle against poverty, school dropouts and other social ills will only continue.  Marriage should be promoted as the best possible option for raising children and family stability. It’s a view that has been supported by history and significant social science research.  Changing attitudes regarding sexual norms have undermined what was once universally accepted, and contributed to a growing underclass.  A public pro-marriage public education campaign spearheaded by a diverse group of leaders can help to reset public norms and expectations. The promotion of parenting and employment skills especially among low-income populations has also proven helpful in lowering unemployment and aiding family stability. Lastly, current policy should reflect the importance of fathers in the lives of children both financially and developmentally. The welfare state has been massively destructive to families, especially low-income and minority families. To that extent conservatives support programs that work to strengthen – not divide – the family and do all they can to include the father in the life of his children. Private organizations like the National Fatherhood Initiative  and The National Center for Fathering are two organizations that have not only educated millions about the importance of fathers but are deeply involved in putting together families and creating a culture where fathers are needed and valued. [xii]

Empowering Organizations. Finally, we should be proud that there are already many organizations in North Carolina committed to working with the poor and committed to ensuring the poor get a fresh start.  Organizations like the Salvation Army, Samaritan’s Purse, Big Brothers and Big Sisters, local homeless shelters, shelters for victims of domestic violence, and Boys and Girls clubs help not only the individuals involved but all North Carolinians.  State government must do all it can to ensure such organizations are not burdened by regulation.  State law should welcome the work and growth of such organizations as a sign of a healthy civil society.

 

Conclusion

Calls for the $15 minimum wage can be heard in North Carolina and across the country. The left, largely supported by big union money, is behind most of these efforts purporting to aid the poor and disadvantaged and alleviate poverty.  Raising the minimum wage is not an anti-poverty program. It doesn’t work and there are many good reasons why we should be wary of efforts to raise the minimum wage in North Carolina.

Minimum wage laws “tax” some workers in the form of higher costs to provide higher wages to low-skilled employees.  Doing so discourages work, dulls incentives and makes the poor more averse to risk-taking.

If the left is truly concerned about the poor how can it support legislation that literally criminalizes job opportunities for those most in need? The minimum wage takes away someone’s right to work.

Moreover, the minimum wage severs the relationship between employers and employees and skills and wages.  People are paid according to the marginal value of their skills and labor, as evaluated by the employer.  Minimum wage laws outlaw voluntary work agreements between employers and employees.

Despite the failings and many harmful impacts, the left remains undeterred in its support for increasing the minimum wage.  If conservatives are truly committed to the poor, they will defeat the left’s efforts and champion solutions that address the root causes of poverty and expand economic and educational opportunity for those most in need.

 

Minimum Wage Chart for US States

 

State	Standard Minimum Wage ($/hr) as of Jan 2017	Highest Approved Standard Minimum Wage ($/hr)
Alabama	None	None
Alaska	$9.80	Based on Inflation
Arizona	$10.00	Phased in $12.00 eff. 1-1-20[xiii]
Arkansas	$8.50	None
California	$10.50	Phased in $15.00 eff. 1-1-22[xiv]
Colorado	$9.30	Phased in $12.00 eff. 1-1-20[xv]
Connecticut	$10.10	None
Delaware	$8.25	None
District of Columbia	$12.50	Phased in $15.00 eff. 7-1-20[xvi]
Florida	$8.10	Based on cost of living
Georgia	$5.15	None
Hawaii	$9.25	$10.10 eff. 1-1-18
Idaho	$7.25	None
Illinois	$8.25	None
Indiana	$7.25	None
Iowa	$7.25	None
Kansas	$7.25	None
Kentucky	$7.25	None
Louisiana	None	None
Maine	$9.00	Phased in $12.00 eff. 1-1-20[xvii]
Maryland	$9.25	None
Massachusetts	$11.00	None
Michigan	$8.90	$9.25 eff. 1-1-18[xviii]
Minnesota	$9.50/$7.75[xix]	None[xx]
Mississippi	None	None
Missouri	$7.70[xxi]	Based on cost of living
Montana	$8.15/$4.00[xxii]	Based on inflation
Nebraska	$9.00	None
Nevada	$8.25/$7.25[xxiii]	Based on fed. min. and inflation
New Hampshire	Fed. min. wage by reference	None
New Jersey	$8.44	Based on inflation
New Mexico	$7.50	None
New York	$9.70	Phased in $12.50 eff. 2020[xxiv]
North Carolina	$7.25	None
North Dakota	$7.25	None
Ohio	$8.15/$7.25[xxv]	Based on inflation
Oklahoma	$7.25/$2.00[xxvi]	None
Oregon	$10.25[xxvii]	Phased in $13.50 eff. 7-1-22[xxviii]
Pennsylvania	$7.25	None
Rhode Island	$9.60	None
South Carolina	None	None
South Dakota	$8.65	Based on inflation
Tennessee	None	None
Texas	$7.25	None
Utah	$7.25	None
Vermont	$10.00	$10.50 eff. 1-1-18[xxix]
Virginia	$7.25	None
Washington	$11.00	Phased in $13.50 eff. 1-1-20[xxx]
West Virginia	$8.75	None
Wisconsin	$7.25	None
Wyoming	$5.15	None

Sources: U.S. Dept. of Labor and state web sites.

 

[i] NC Justice Center Media Release, Increasing North Carolina’s Minimum Wage to $15 an hour by 2024 would give 1.7 million people a raise. April 27, 2017, NC Justice Center, Raleigh NC.

[ii] NC Dems introduce bills to raise minimum wage, ensure equal pay for women WNCN Raleigh, March 2, 2017. Available online at: http://wavy.com/2017/03/02/nc-dems-introduce-bills-to-raise-minimum-wage-ensure-equal-pay-for-women/

[iii] NC Democrats file bill to raise minimum wage, require paid sick leave, Raleigh News & Observer, March 3, 2017,

[iv] The Republicans are Coming for Your Minimum Wage Hike, Clio Chang, The New Republic, July 13, 2017

[v] How a $15 Minimum Starting Wages Would Affect Each State, James Sherk, Heritage Foundation, August 2016. Available online at: http://www.heritage.org/budget-and-spending/report/how-15-hour-minimum-starting-wages-would-affect-each-state

[vi] Minimum Wage Increases Wages, and Low-Wage Employment: Evidence from Seattle. Ekaterina Jardin, Mark C. Long, Robert Plotnick, Emma Van Inwegen, Jacob Vigdor and Hilary Wething, National Bureau of Economic Research, June 2017. Available online at www.nber.org’

[vii] A ‘very credible’ new study on Seattle’s $15 minimum wage has bad news for liberals, Max, Ehrenfreund, Washington Post, June 26, 2017. Available online at: https://www.washingtonpost.com/news/wonk/wp/2017/06/26/new-study-casts-doubt-on-whether-a-15-minimum-wage-really-helps-workers/?utm_term=.3e9a106a7553

[viii] Raleigh boosts pay nearly 15 percent for lowest-level city workers, Raleigh News and Observer, January 17, 2017. Available online at:  http://www.newsobserver.com/news/local/counties/wake-county/raleigh-report-blog/article127017229.html

[ix] North Carolina Unemployment Rate, Bureau of Labor Statistics (for various years). Data available at: https://www.bls.gov/lau/

[x] Bureau of Labor Statistics, Database, Tables and Calculators by Subject for North Carolina. Available online at: https://data.bls.gov/timeseries/LASST370000000000003

[xi] American Community Survey Brief, September 2013, US Bureau of the Census. Available online at: https://www.census.gov/prod/2013pubs/acsbr12-01.pdf

[xii] For an extended discussion on these topics see: Strengthening the American Dream through families. W. Bradford Wilcox, American Enterprise Institute, December 2015

[xiii] Annual increases based on cost of living starting 2021.

[xiv] Effective for businesses with greater than 25 employees on 1-1-22, effective for businesses of 25 or fewer employees on 1-1-23. Inflation based annual increases begin 1-1-23.

[xv] Annual increases based on cost of living starting 1-1-21.

[xvi] Annual increases based on inflation starting 7-1-21.

[xvii] Annual increases based on inflation starting 1-1-21.

[xviii] Inflation based increases take effect Jan. 1, 2019. Increases not to exceed 3.5%.

[xix] For employers with an annual sales volume of $500,000 or more, the minimum wage is $9.50; for those with an annual sales volume of less than $500,000, the minimum wage is $7.75.

[xx] Annual increases will be based on inflation starting 1-1-18.

[xxi] In addition to the exemption for federally covered employment, the law exempts, among others, employees of a retail or service business with gross annual sales or business done of less than $500,000.

[xxii] $4.00 rate applies to businesses with gross annual sales of $110,000 or less; $8.15 applies to all others.

[xxiii] $8.25 for employers without health benefits; $7.25 for employers with health benefits

[xxiv] For New York City, $15.00 min. wage effective for employers of 11 or more employees by 12-31-2018 and effective for employers of 10 or fewer employees by 12/31/2019. Same effective for Nassau, Suffolk, and Westchester counties by 12-31-21. For all other areas, increases to the standard minimum wage will be based on inflation after 12-31-20 until the standard rate reaches $15.00.

[xxv] $7.25 for employers grossing $299,000 or less

[xxvi] Employers of ten or more full time employees at any one location and employers with annual gross sales over $100,000 irrespective of number of full time employees are subject to federal minimum wage; all others are subject to state minimum wage of $2.00.

[xxvii] Minimum wage in Portland metro area is required to be $1.25 higher than state standard and minimum wage in nonurban counties is set $1.00 below state standard.

[xxviii] Starting 7-1-23, annual increases will be based on inflation.

[xxix] Starting 1-1-19, minimum wage will increase annually by 5% or the CPI, whichever is smaller.

[xxx] Starting 1-1-20, minimum wage will increase annually based on inflation.