Democrats are jumping on the minimum wage-increase bandwagon yet again, both as a way to change the subject from Obamacare’s failures and to propose a populist handout—paid for by businesses. But why is the federal government involved at all? Why isn’t the minimum wage strictly a state issue instead?
The minimum wage has been with us since 1938, when it was included in President Roosevelt’s Fair Labor Standards Act (FLSA). The current rate is $7.25 an hour, but Democrats are pushing for $10.10. And there is a union-led drive for $15.00 an hour for fast-food businesses, more than twice the current rate.
The minimum wage is terrible economic policy both because (1) it prices the least-skilled workers out of a job and (2) it imposes a price control on one of the most important factors of production, labor.
But the negative impact varies for different employers, different industries, different states and even cities. What employers can and will pay for workers in California, and especially high-cost San Francisco, may be much more than a similar employer will pay in Mississippi. And what an employer will pay for engineers in the low-unemployment tech industry will be higher than what a small hamburger-stand owner will pay for counter help.
So why have a national minimum wage that imposes the same price floor on every state? If there is going to be a minimum wage, why not let states decide?
In fact, the states are already doing just that. According to the National Conference of State Legislatures (NCSL), 21 states have set the minimum wage higher than the federal law. Eleven of those states’ minimum wage is somewhere below $8.00 an hour; eight place their wage between $8.00 and $9.00, and Washington state and now Oregon are above $9.00.
The irony is that a nationwide minimum wage is likely to be either ineffective or very damaging, depending on where a person lives and the job being sought.
A federal minimum wage set high enough to help people in high-cost states would be so high that it would have a significant negative impact on low-skilled workers in the low-cost states. Conversely, a minimum wage set low enough to not be detrimental to workers in low-cost states would do little for those in the high-cost states, because so many already make that much or more.
States are reasserting their power and independence in a number of areas such as gay marriage, abortion, physician-assisted suicide, the sale and use of marijuana, and tort reform. Congress should stay out of the minimum wage fight and let the states make that decision.
January 21, 2014