Help workers truly earn higher wages

The minimum wage in North Carolina is $7.25 an hour — no different than the federal minimum. Other jurisdictions have set higher wage floors, by legislation or referendum. In the District of Columbia, nearly all employers must pay at least $17.50 an hour.

States with Democratic-controlled governments such as Washington ($16.66), California ($16.50), Illinois ($15.00), and Massachusetts ($15.00) have much higher minimum wages than our state. But so do the likes of Missouri ($13.75), Nebraska ($13.50), and Florida ($13.00), each governed by Republicans.

The North Carolina General Assembly isn’t going to enact a minimum-wage bill. And our state lacks a citizen-initiative process to place propositions directly on the ballot. But rather than just tell you a minimum-wage hike isn’t going to happen, I’ll tell you why a minimum-wage hike shouldn’t happen.

Wages aren’t arbitrary. They are market prices that reflect ever-changing conditions and preferences among prospective employers, employees, vendors, and consumers. When government intervenes to fix a price — be it a floor beneath wages or a ceiling above consumer prices — there are direct beneficiaries, yes, but also direct and indirect victims whose losses must be taken into account.

In the case of minimum wages, for example, keep in mind that would-be workers aren’t just competing with other local folks for a fixed set of entry-level jobs. They’re often competing with faraway workers — either because the business itself might move or, more likely in this case, because sectors with lots of minimum-wage workers have the option of substituting technology made elsewhere for workers hired locally.

Been in a fast-food restaurant lately? You may well have placed your order on a kiosk rather than spoken to a cashier. You’ve probably also used scanners and kiosks to buy groceries or park your car. These technology substitutions are occurring across the country, regardless of wage regulation, but they are happening faster and more extensively in states with higher minimum wages. As automation, robotics, and artificial intelligence keep evolving, the market for entry-level and low-skill workers will adjust accordingly.

For decades, politicians and policy analysts have argued vociferously about the tradeoff between wage mandates and job creation. Among economists, most agree that when government hikes minimum wages, some current or prospective workers experience income gains while others lose their jobs (because it was no longer profitable for employers to hire them at a cost higher than the value of the work they would do). What economists disagreed about was the size of each group — the gainers and the losers — and the relative magnitudes of their gains and losses.

I think a fair reading of the empirical evidence is that minimum wages do more harm than good. Further, the most disadvantaged workers in the labor market — young people just starting out, others transitioning from addiction or the criminal justice system, and those with disabilities — are the most likely to suffer dislocation, while teenagers from middle-income or even affluent households enjoy much of the income gains.

The National Bureau of Economic Research just released a study of minimum-wage hikes during the 2010s. Written by economists at Texas A&M and the University of California at San Diego, the study found that large increases in minimum wages “significantly reduce employment and labor force participation for individuals of all working ages with severe disabilities,” resulting in lower incomes and higher dependency on public assistance.

Another new NBER paper by scholars at Clemson, Duke, Stanford, George Mason, and UC-Irvine tested the proposition that higher wage floors actually increase employment by inducing more people to apply for the better-paying jobs.

“We find no evidence that higher minimum wages increase job search for low-skilled jobs,” they concluded. “Instead, the evidence suggests that higher minimum wages decrease the number of workers seeking employment.”

Should policymakers seek to raise wages in North Carolina? Absolutely. They should do so by improving education, fostering investment in tools and other capital, and otherwise making the labor of entry-level workers more valuable. Let’s help them truly earn more.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.