Progressivism’s Failures: From Minimum Wages to the Welfare State
As I write, the Democratic Congress is contemplating various measures designed to alleviate poverty levels in the United States. They include: the doubling of the minimum wage; the expansion of child credits. Let’s review both.
The Minimum Wage Hike
Congress intends to raise the federal minimum wage from $7.25 to $15. This makes various assumptions: first, that minimum wage workers themselves are indeed poor. This is wrong: they come from families with a median household income of $66,000; for, their median age is twenty-four years old, and 60 percent are still attending school. Secondly, this policy makes the assumption that it will have no statistically significant impact on unemployment. This is also misguided. The City of Seattle enacted a $13 minimum wage in 2016, resulting in a fall of 9 percent in hours worked among these jobs. The job turnover rate declined by 8 percent, and the city’s less experienced minimum wage workers saw no net increase in payment.
In fact, a separate study found that Seattle’s policy reduced low-wage employment by 6–7 percent, and due to the reduction in employment, workers in this category actually saw a net decline in pay. The third assumption made by this minimum wage hike is that workers will indeed see an increase in inflation-adjusted income. A crucial lesson of economics is that living standards are not determined just by nominal wages, but also the amount which such a wage can consume. Literature suggests that raising the minimum will correspond with an increase in cost of living, due to businesses offsetting higher labor costs, and therefore harm precisely those whom the policy intends to help—low-wage workers. For instance, the average childcare worker in the United States earns $11 an hour—below the threshold Congress intends to set. Therefore, higher labor costs will simply mean an increase in the cost of childcare.
One estimate found that this policy would cause, on average, childcare costs to rise by 21 percent in the United States—that’s an increase of $3,700. Some areas would inevitably be hit harder than others: for instance, the state of Mississippi would see a whopping 43 percent increase in costs. Another essential component of the cost of living is food costs. Many grocery workers work below $15 in the United States:
Article from Mises Wire