In 2014, I debated Seattle City Council member and avowed socialist Kshama Sawant. Sawant was one of the chief proponents of a city ordinance that would create a $15 minimum wage. Eventually, the city adopted a three-phase transition plan that would push minimum wage to $11 per hour, then $13 per hour, then $15 per hour. In our debate, I asked Sawant directly whether she would support a $1,000 minimum wage. She deflected the question, of course. She deflected the question because reality would not allow for a $1,000 minimum wage. Were the government to mandate such an idiocy, every business in the Seattle area would immediately cut back employment, and all of those seeking minimum wage jobs would end up losing their income.
As it turns out, it didn’t take a $1,000 minimum wage to destroy the income for minimum wage workers. Thirteen dollars was plenty. According to a paper from The National Bureau of Economic Research, “the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”
All of this was foreseeable, given the fact that businesses compete with one another to lower cost and thus operate with slim profit margins. That means businesses have two choices when government forcibly raises labor costs: increase prices and thereby lower demand, or cut back on the work force. Businesses opted to do the latter in order to stay competitive.
Reality is unpleasant. Perhaps that’s why so few politicians seem willing to face up to it.
On a larger scale, the bipartisan consensus in favor of regulations that force insurance companies to cover pre-existing conditions mirrors the minimum wage debate. It is perfectly obvious that forcing insurance companies — professional risk assessors that determine pricing based on actuarial estimates as to health — to cover those with pre-existing conditions costs them an enormous amount of money. If you are a consumer, why would you bother buying a health insurance plan while healthy, when you could wait to do so until after your costs materialize? Yet both parties would rather cater to the foolish notion that it is “unfair” for insurance companies to act as insurance companies than allow insurance companies to do what they do best: create a market to allow Americans to exercise choice.
But in economics, once one heresy has been advanced, a slew of other heresies follow. Coverage of pre-existing conditions has to be subsidized somehow. Democrats propose to mandate that people buy health insurance; this violates freedom of choice and artificially increases premiums for the healthy in order to pay for the sick. Republicans propose subsidies to encourage purchase, artificially creating demand without allowing the competition among health plans that would keep premiums down.
But everyone is surprised when such schemes fail.
They shouldn’t be. Politics used to be the art of educating the public about reality and pushing for change where change is possible. Now politics is the art of convincing the public that you can make reality disappear if it votes for you. Sadly, our politicians can’t make reality disappear. And every time they try to do so, reality comes rushing back with a vengeance.
A new study, released Monday, has found that the increase in Seattle’s minimum wage has led to reduced employment for workers and cut hours for those that kept their jobs. This essentially cancels out any benefits of the higher wages that the city had hoped for its workers.
In 2014, city council member Kshama Sawant pushed for the city to increase its minimum wage to $15 per hour, in attempt to improve the lives low-wage workers.
In response, Seattle signed in the Seattle Minimum Wage Ordinance and raised its minimum wage from $9.47 per hour in 2014 to $11 per hour in 2015, and later to $13 in 2016.
Using a variety of methods to analyze employment in all sectors, the study concluded that second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent.
“Consequently, total payroll fell for such jobs,” the study states. “Implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”
There is evidence that attributes more modest effects in regards to the first wage increase. But the recent phase-in had a more direct and harsher effect on the low-wage workers. It reduced the number of low-wage jobs and the hours of retained employees.
Businesses that pay their employees minimum wage tend to focus on how to keep their assets high and liabilities low, in regards to wages. And they do this by playing the same game as the government.
Seattle rose the minimum wage too high too quickly without giving the city time to adjust and operate under the new conditions.
This will serve as another example as to how other states should pay closer attention to how their government and private businesses interact with each other in order to reach a successful middle ground that works with both entities.
Compromise? In this day and age of binary thinking? Naw…