Sharp boost to minimum pay bad plan

Liberal activists across the nation are making today a national day of action for raising the federal minimum wage. Last February, President Obama called for raising the minimum from $7.25 to $9 an hour. The next month, the U.S. House defeated a Democratic proposal to boost it to $10.10.

Meanwhile, we in Washington continue to boast (or bemoan) the nation’s highest minimum wage — $9.19 per hour and indexed to inflation. Now that national best looks woefully inadequate to some.

A union-backed November ballot initiative in the city of SeaTac would raise the minimum for hospitality and transportation workers to $15 an hour, 63 percent higher than the state minimum. Some Seattle fast food workers are also demanding $15. Seattle venture capitalist Nick Hanauer has championed a $15 federal minimum wage.

And now Seattle Mayor Mike McGinn wants to block a Whole Foods development because he thinks they don’t pay adequate wages and benefits. The store says it provides health insurance and pays nonmanagement employees an average hourly wage of $16.10. Seems they’d also be the only nonunion grocery in the immediate area. The union representing the six nearby competitors swiftly endorsed the mayor’s re-election bid.

All of a sudden, dictating the wage floor has become the latest political fashion. Let’s consider the consequences.

Hanauer’s proposal drew national attention, mostly negative. He argues that the wage hike would put more money in workers’ hands, providing an economic stimulus by increasing demand for goods and services. He dismisses concerns that the wage hike would result in job losses.

Even economists sympathetic to wage hikes rejected Hanauer’s prescription. They hesitate to put numbers to the effect of doubling the federal minimum wage. At $15, the minimum would jump to 75 percent of the national median. That’s problematic.

Tim Worstall, Forbes columnist and Fellow at London’s Adam Smith Institute writes, “…when the minimum wage rises above 50% or so of median wages then we start to see significant unemployment effects.”

Steep increases in the minimum wage harm the very people they purport to help. While some get higher pay, many more find themselves without a job, experiencing the true minimum, zero.

Jobs disappear, especially for low-skilled workers — the young, the uneducated, immigrants with limited English-language skills. Often, these are the people whose first jobs will be in the service and hospitality industries currently being targeted for a steep wage hike.

As a hotel manager told me recently, with a $15 minimum wage, “there will be no entry level jobs for people with entry level skills.” Those jobs will go to college graduates and more experienced workers.

Supporters of the higher minimum wage misconstrue the evidence. They rely on a handful of studies that appear to justify their claims that wage hikes don’t cost jobs. Such studies, however, are out of the mainstream. A widely cited survey of the best research finds that 85 percent of the studies done in the last two decades associate minimum wage increases with job losses.

Washington’s hospitality industry faces an additional burden. Washington is one of just seven states without a “tip credit.” Under federal law, tipped workers may be paid $2.13 an hour, with the expectation that tips will bring them to the $7.25 minimum. Our law makes no such allowance.

As a result, Anthony Anton told the Seattle Times, restaurants here have the country’s highest labor costs. Anton, the head of the Washington Restaurant Association, says that’s one reason the typical restaurant here has just 14 employees, rather than the national average of 17.

As a vehicle to lift people out of poverty, the minimum wage is ineffective, missing its objective. About half of minimum wage earners nationally are between the ages of 16 and 24, many of them students in middle-class households. And for many young and older workers, the minimum wage job is the first rung on the career ladder. It gives them the chance to learn skills and get ahead. At $15 the bottom rung will be out of reach for many.

The recession destroyed a lot of jobs, jobs not yet replaced. Unemployment remains our most pressing economic problem. Steep boosts in the minimum wage just make it worse.

Richard S. Davis is president of the Washington Research Council. His email address is rsdavis@simeonpartners.com

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