Wage growth is best left to the entrepreneurs that keep our economy running smoothly.
by ALFREDO ORTIZ
With April Fool’s Day comes a lot of trickery and pranks. While many of them are harmless and entertaining, another hoax perpetrated on the American people is not as innocent and has been promoted for years.
Groups like Fight for 15 – and their affiliate organizations – have been touring the country advocating for a government mandated $15 per hour minimum wage, arguing it would raise the standard of living for American workers and their families. The coalition has gained attention in part thanks to supporters like Democratic party leaders Senators Elizabeth Warren and Bernie Sanders.
However, the real-life outcomes of raising the minimum wage have been devastating.
According to a 2017 study from the University of Washington, the $13 minimum wage that exists in Seattle forced employers to reduce entry-level employee hours by 9 percent. And the average monthly earnings for these workers decreased by $125.
Another report examining the impact of a $15 minimum wage in Montgomery County, Maryland, yielded similar results. Researchers found that increasing the entry-level wage to $15 an hour would cost the county 47,000 jobs over the next five years, or the equivalent of $396.5 million in lost income.
These results are not a surprise. Forcing budget-strapped businesses to fork over money they don’t have to employees that don’t quite have the necessary experience and skills to make it to the next career level will only induce layoffs, pay cuts, reduced hours and job automation. An outcome that benefits neither businesses nor employees.
Until recently, wage levels were a big problem in the U.S., with earnings remaining largely stagnant for nearly a decade. So it’s not a surprise that efforts to raise pay have been made the centerpiece of national populist campaigns.
However, the approach to raise wages through government decree harms employees and damages the economy, period.
Government certainly isn’t the solution to higher wages, but what is? The answer lies in a strong, growing economy and a skilled labor force.
On a micro level, the key to attaining high-paying employment is possessing the skills a job demands. This may mean forgoing a traditional college education – as well as avoiding tens of thousands of dollars of debt – and instead attending a trade or vocational school that can lead to careers paying $50,000 or more per year (these include nurses, mechanics, welders, electricians etc.). Also, simply being able to work hard at an entry-level job and gain the necessary experience to move up the career ladder – a path inhibited by minimum wage hikes – will significantly increase earning potential.
On a macro level, the U.S. is already heading in the right direction. According to early reports from the Bureau of Labor Statistics, the wage-growth rate over the past year has reached its highest level since the Great Recession, which can be attributed to the current administration’s policies of deregulation and reducing taxes.
For example, just a month after the passage of the Tax Cuts and Jobs Act – legislation that significantly reduced the tax burden on U.S. businesses – roughly 80 companies had announced some sort of pay increase for their employees, and over half of those planned on raising their base wage to $15 an hour or more. In fact, a case could be made that the tax bill has done more to raise wage levels to $15 an hour in a few months than the Fight for 15 campaign has accomplished over the better part of a decade.
The strong wage growth is easily explained through the supply and demand of labor. As job creation rates remain high, the labor market moves closer to full employment, which essentially means that everyone who wants a job has a job. In this environment, businesses must compete for workers to fill their vacant positions by offering job candidates a wide variety of perks. These could include things like health benefits, retirement plans and, yes, higher wages. Economists have come to call this very situation a tightening of the labor market.
Many ideologues may be trying to trick the American people into supporting government mandated wages, but I believe the results speak for themselves. Wage growth is best left to the entrepreneurs and job creators that keep our economy running smoothly, not misguided politicians.