The DC Board of Elections held a hearing this past Thursday to debate the appropriateness of a proposed ballot measure that would, if approved, increase the District’s minimum wage to $15 per hour. While there is no valid legal reason to keep the measure off the ballot, there are a plethora of policy and practical concerns that should be considered.

 

$15 Minimum Wage

 

Firstly, the minimum wage, in general, is a flawed policy that was created to cover up a much greater government failure. If you’re an adult resident of the District, and you’re earning $10.50 an hour, then we, as a society, have failed you.

Somewhere along the spectrum of our education and job training systems, we have failed to transmit to you the skills that you need to command a middle-skill, middle-income job. We’ve also failed to provide to you a sufficient number of those middle-class job opportunities.

What the District owes you is the opportunity to acquire a set of skills that permit you to earn a middle-class living. To a certain extent, the minimum wage interferes with that by restricting the number of entry-level jobs in DC that provide that crucial first step into the job market.

Also consider:

  • Increasing the minimum wage is bad for low-skill workers because it will reduce the number of minimum wage jobs available in the District. An increase in the minimum is good for some workers, but it’s catastrophic for the DC residents who lose their jobs altogether, and then find it harder to obtain a new job.
  • Of the minimum wage jobs that do exist in the District, about 30% of them are held by DC residents. Should the minimum wage in DC rise to $15 per hour and the minimum wage in Virginia remain at $7.25 and $11.50 in Maryland, that figure could shrink to as little as 15% as DC workers are displaced by better qualified out-of-state workers.
  • Realize that labor is a perfectly normal good. It’s susceptible to the laws of supply and demand. When the cost of labor goes up, the demand for labor goes down. It’s not the “theory” of supply and demand. It’s a law, just like gravity.
  • A $15 minimum wage will accelerate a process already in motion — automation. As labor costs rise, businesses are incentivized to substitute technology for labor. McDonald’s is installing ordering kiosks and Applebee’s is using tablets to reduce labor costs.
  • A $15 minimum would hurt teenagers trying to enter the job market. They will be competing with older, more experienced workers and will lose out on the opportunity to get crucial early work experience.
  • There is a popular theory that increases in the minimum wage increase labor productivity by increasing employee satisfaction and retention. But the definition of an increase in productivity is that it requires fewer inputs (hours of labor) to produce the same amount of output. Any productivity increases would be negated by the fewer number of hours required to complete that work.
  • If labor costs increase without a corresponding increase in revenue, or a decrease in other costs, someone has to lose. The business owner will probably absorb a portion of those additional costs, but they’re going to squeeze savings from somewhere else. If you can’t raise prices because of competitive pressures, that means other costs will have to be cut. In most businesses, labor accounts for as much as half of all costs. This is how workers lose hours and jobs.
  • If enough costs cannot be squeezed from existing operations, small businesses with low margins, like retail stores, are susceptible to being driven out of business. This is happening regularly in jurisdictions that have adopted a $15 minimum such as San Francisco and Seattle.

 

Going out of business

 

Most importantly from a policy perspective, a minimum wage ballot measure is a usurpation of a core function of the legislature. Setting the minimum wage is one of the central prerogatives of an elected legislature. Considering that this ballot measure also indexes the minimum wage to inflation, once the District council gives this power up, it’s gone forever.

If this ballot measure makes the ballot, the DC electorate should reject it because it is ultimately not in the best interests of low-skill workers. If the electorate doesn’t reject it,  the Council should overrule it because setting the minimum wage is the proper role of the legislature.

  • forstudentpower

    “Realize that labor is a perfectly normal good” — that’s one of the most hotly contested propositions in modern economics. Telling people to “realize” it is hardly an argument.

    • Sidney Rock Dove

      Really, it’s a completely false claim–pure rhetoric. The question is, what makes labor markets different from highly competitive commodity markets, and how much can government stipulate wage floors without causing serious disruption?

      Depends on the industry of course, but $15 might make sense for a lot of them.

  • 20019

    As usual, completely ignores and fails to take into account greater spending power that offsets increased labor costs by increasing revenue. Even Walmart has figured that out.