Nicklaus: $15 minimum wage push looks like a job killer
Even its supporters recognize that the minimum wage is a policy best applied in moderation. Set it too high, and you’ll destroy jobs.
In the past, the federal government and most states raised the wage floor gradually enough that any job-killing effects were hard to detect. Now, the popular cry for a $15 minimum wage is taking us into uncharted territory. Not only is the minimum rising rapidly in some places, it also will affect more workers than ever before.
Take Kansas City, where the city council voted to raise the minimum wage to $13 an hour by 2020. That’s 74 percent of the metro area’s median wage, a ratio that’s well outside historical experience.
Many economists think there’s a tipping point for the minimum wage, so that job losses get worse if it’s raised above, say, half of the local median pay. A high-cost place like San Francisco can get away with a high figure: When its minimum wage goes to $15 in three years, it will be just 40 percent of the current median wage.
The dynamic is different in Kansas City and even in Los Angeles, where a new $15 minimum would be 82 percent of the metro area’s current median wage. “It’s a much bigger increase for someplace like Kansas City, and therefore it can do a lot more damage,” says Kenneth Troske, a professor of economics at the University of Kentucky.
Among developed countries, France has the highest minimum wage at 63 percent of median hourly pay. Most nations have kept the ratio below 50 percent, and the current U.S. rate of $7.25 an hour amounts to 42 percent of median pay.
St. Louis politicians also are flirting with the idea of a big increase. After a $15 minimum wage stalled in the Board of Aldermen, proponents replaced it with an $11 proposal. Even the lower figure, at 64 percent of the current median wage, would probably cause jobs to flee the city.
David Macpherson, a professor of economics at Trinity University in San Antonio, did a study for the Missouri Restaurant Association and found that a $15 minimum wage would cost St. Louis 3,100 jobs.
Although jobs might not disappear all at once, he thinks employers eventually would find ways to economize. “Firms are going to find more ways to automate and use less labor,” Macpherson said. “In the long run, I think some of the places that have acted on this are going to regret it.”
Because they are such dramatic changes, the current round of local minimum-wage increases will be studied intensively by economists. Perhaps no jurisdiction will interest them more than the state of New York.
There, a state agency wants to apply a $15 minimum wage only to fast-food chains. Not only is it a big increase over the state’s current minimum of $8.75 an hour, but it applies to a single industry that generally pays low wages.
The change is likely to have unforeseen effects. Other employers may see their best workers lured away by the artificially high fast-food wages. But if fast-food restaurants close, unable to raise the price of burgers or tacos enough to cover their costs, the $15 wage becomes a mirage for their current workers.
Across the land, plenty of workers in high-minimum-wage cities may find themselves staring at the same mirage. We’re about to learn a lot more about the economics of the minimum wage, and workers may not like the lessons.
In the past, the federal government and most states raised the wage floor gradually enough that any job-killing effects were hard to detect. Now, the popular cry for a $15 minimum wage is taking us into uncharted territory. Not only is the minimum rising rapidly in some places, it also will affect more workers than ever before.
Take Kansas City, where the city council voted to raise the minimum wage to $13 an hour by 2020. That’s 74 percent of the metro area’s median wage, a ratio that’s well outside historical experience.
Many economists think there’s a tipping point for the minimum wage, so that job losses get worse if it’s raised above, say, half of the local median pay. A high-cost place like San Francisco can get away with a high figure: When its minimum wage goes to $15 in three years, it will be just 40 percent of the current median wage.
The dynamic is different in Kansas City and even in Los Angeles, where a new $15 minimum would be 82 percent of the metro area’s current median wage. “It’s a much bigger increase for someplace like Kansas City, and therefore it can do a lot more damage,” says Kenneth Troske, a professor of economics at the University of Kentucky.
Among developed countries, France has the highest minimum wage at 63 percent of median hourly pay. Most nations have kept the ratio below 50 percent, and the current U.S. rate of $7.25 an hour amounts to 42 percent of median pay.
St. Louis politicians also are flirting with the idea of a big increase. After a $15 minimum wage stalled in the Board of Aldermen, proponents replaced it with an $11 proposal. Even the lower figure, at 64 percent of the current median wage, would probably cause jobs to flee the city.
David Macpherson, a professor of economics at Trinity University in San Antonio, did a study for the Missouri Restaurant Association and found that a $15 minimum wage would cost St. Louis 3,100 jobs.
Although jobs might not disappear all at once, he thinks employers eventually would find ways to economize. “Firms are going to find more ways to automate and use less labor,” Macpherson said. “In the long run, I think some of the places that have acted on this are going to regret it.”
Because they are such dramatic changes, the current round of local minimum-wage increases will be studied intensively by economists. Perhaps no jurisdiction will interest them more than the state of New York.
There, a state agency wants to apply a $15 minimum wage only to fast-food chains. Not only is it a big increase over the state’s current minimum of $8.75 an hour, but it applies to a single industry that generally pays low wages.
The change is likely to have unforeseen effects. Other employers may see their best workers lured away by the artificially high fast-food wages. But if fast-food restaurants close, unable to raise the price of burgers or tacos enough to cover their costs, the $15 wage becomes a mirage for their current workers.
Across the land, plenty of workers in high-minimum-wage cities may find themselves staring at the same mirage. We’re about to learn a lot more about the economics of the minimum wage, and workers may not like the lessons.
