HOUSTON, July 12, 2013 — On Thursday, the Council of the District of Columbia voted 8-5 to implement a “living wage law” requiring that companies that make over $1 billion in profit every year and operate in a space over 75,000 square feet must pay their employees a minimum of $12.50 per hour. If the mayor signs it into law it will be the highest minimum wage in the country. Washington DC already has a minimum wage of $8.25 per hour, which is one dollar higher than the federally imposed minimum wage of $7.25.
If increasing the minimum wage has no negative effects on the economy, why stop at $12.50 per hour? Why not $20 per hour? $50? $100? If minimum wage causes no harm, there is no logical minimum.
Minimum wage laws do cause harm, particularly to the poor and the unskilled. They persist for political, not economic reasons. Minimum wage laws greatly benefit politicians, big business and labor unions. Look at who has lined up to demand minimum wage increases, and you will see who benefits. Always follow the money.
Minimum wage laws tell employers to discriminate against lower skilled workers. You don’t pay $10 for labor that is only worth $8. You replace two low-skilled workers with one higher-skilled worker; you replace dishwashers and kids who bus tables with styrofoam plates and self-bussing. You don’t hire anyone who hasn’t already held a job, who has no skills, who has a lousy education.
The district’s new minimum wage law tells employers like Wal-Mart to hire people whose skills are valued below $12.50 if they’re feeling charitable, or if they can’t find people whose skills are worth more, not to bother opening at all. Wal-Mart has taken the hint and announced that they won’t open three new planned stores, slated to employ almost 2,000 people.
The district council seems not to realize that the true minimum wage is zero. They’ve opted for unemployment over Wal-Mart’s new jobs and low prices. With other incentives, like Obamacare, minimum wage encourages employers to create part-time jobs rather than full-time careers, if they create any jobs at all.
For declining to build new stores in the district, Wal-Mart will be condemned as greedy. But suppose you knock on your neighbor’s door and offer to mow his lawn for $500? If your neighbor refuses your offer, does that make him greedy? No. At some point he’d rather buy himself a riding mower or tear up the lawn and pour green concrete than pay for lawn-mowing services. Your neighbor is just like Wal-Mart, McDonald’s, and other businesses that respond to changes in minimum wage.
Not everyone would suffer from the district’s new minimum wage. Businesses that don’t meet the cutoff criteria now have a competitive advantage against larte, low-cost, low-price competition from Wal-Mart. They can pay workers $4.25 less than Wal-Mart. Apparently the honor of working for a firm that makes only $500 million per year is worth earning less than a “living wage.”
Skilled workers benefit from minimum wages; that’s why unions always want them raised. Suppose it costs $500 to build a wall using three minimum wage workers. It costs $750 to build it with one skilled laborer. Skilled labor tells the district council, “unskilled workers need to earn a living wage; you should double the minimum wage.” Now it costs $1,000 to build the wall with the three unskilled workers. We’ll now hire the skilled worker, who can raise his price to $990.
If minimum wage is raised across the board, big businesses gains at the expense of smaller competitors. They can more easily adjust to higher labor prices — and more easily get rid of full-time labor — than smaller firms. New businesses — new competition — are discouraged. Large firms are much more supportive of minimum wage increases than small ones, and Wal-Mart might not have been so bothered by the districts special Wal-Mart minimum wage if it had been applied across the board.
Because they represent higher-priced workers, unions love minimum wages. Minimum wage laws send the unskilled riff-raff packing, reducing competition for union labor. Not coincidentally, labor union donations are a big share of total council members’ political donations.
Minimum wage laws, by making unemployment among least-skilled workers worse, contribute to a host of social problems. Worse, they hit those least-skilled workers both as workers and as consumers. Prices are pushed up, and workers are hit both in the pay check and in the pocket book.
Washington has the eighth highest cost of living of any city in the country. The majority white area of Ward 3, where unemployment is at 2.4 percent, has no problem with either the costs or job impact of minimum wage. The mostly black residents of Ward 8, where unemployment is a horrific 22.5 percent, are less likely to appreciate the departure of Wal-Mart’s “every day low prices” and 1,800 jobs than are their white fellow-citizens who shop at Whole Foods for “organic” produce and “fair-trade” coffee. They aren’t likely to feel they are better off being unemployed than working for $8.50 at their local Walmart, though the white liberals who want to spare them the horrors of the Wal-Mart corporation piously believe they are.
NPR reports, “Wal-Mart really truly does successfully lower prices. Groceries are a great example. When Wal-Mart comes into a grocery market where they hadn’t previously done business, they lower grocery prices fifteen percent. If you’re living on a modest income, if you’re living on $500 or $600 a week, you’re a single mom, Wal-Mart just bought you seven weeks of free groceries a year. That’s what a fifteen percent savings means.”
The do-gooders on the Council of the District of Columbia do not think in terms of the real impact their policies have on real people. The moralists have arbitrarily picked a wage rate that makes them feel good, wins them votes, and helps the labor unions, who will in turn, help the politicians come election time.
This intentions-oriented perspective is typical of laws that are sponsored and fronted by moralists and supported by special interests. To truly protect the most vulnerable amongst us, we must look beyond the façade of good intentions focus on results. The district’s new minimum wage law is neither compassionate nor morally just. It should be vetoed.