Increasing the minimum wage is a mind numbingly stupid idea, but no one in the debate gets to the point. This idea is a clear manifestation of Ronald Reagan quip : the nine most frightening words in the English language are: I'm from the government, I am here to help.
In theory, supporters generally say that the change is necessary to lift people out of poverty. Opponents generally oppose the idea because it might drive inflation into the system, and push some under skilled workers into the poverty that the change was suppose to prevent.
These theoretical discussions miss the point entirely. Most people who work at minimum wage jobs are not in poverty nor are even poor. Many are college students working part-time while living comfortably at home. Many are the secondary bread winner in the house. Some are people like me who work part-time to get out of the house. Changing the minimum wage law will not lift these people out of poverty because they never were in poverty in the first place.
Even if working minimum wage work was connected to poverty, increasing the baseline will not cure poverty. It is a subsidy which transfers income from producers and consumers to under skilled workers. It does nothing more than make a lack of skills more pleasant. This subsidy does not fix the problem. This solution subsidizes the problem.
If the objective of increasing the minimum wage is to reduce poverty, it makes more sense to deal with this issue through more targeted welfare programs. And, we do. This is where increasing the minimum wage crystallizes the statement of Reagan. As we increase the minimum wage, which doesn't deal with poverty, the additional income triggers reductions in the support provided by programs that do provide resources to those in poverty.
Even if the minimum wage were connected to poverty, the concept of a minimum wage ignores the disease and subsidizes the problem. The problem for these workers isn't the wage. The problem is a level of productivity that fails to command a higher wage. The visible outcome of unskilled workers is poverty. The minimum wage deals with the outcome rather than the cause of the problem.
Supporters put forward a disingenuous response to this criticism of increasing the minimum wage. They argue that wages are not tied to productivity, saying that minimum wage hasn't kept pace with productivity. For example, “If the minimum wage had kept pace with productivity growth [since the late 60's] it would be $16.54 in 2012 dollars.” ~ Dean Baker.
The problem is of course the critic fails to distinguish between productivity of capital and productivity of labor. If GE upgrades a plant to increase productivity 20%, the company is highly unlikely to give the janitor a 20% raise. Capital created the gain, and the economic rents flow to the shareholders rather than the worker.
The contrast between labor and capital productivity are clearly seen in the agriculture market. Since 1940, farmer’s role in the workforce has dropped by more than 80%. That reduced work force covers nearly three times the number of the irrigated acres. While productivity has increased substantially, the National Citizens Council for Migrant Labor says that wages fell by 16% in real terms - and that is seasonal work. Productivity in this case comes from the tractor and not the worker. The rents on the tractor flow to the owner, not the employee.
In the simplistic world of the supporters, if we increase the minimum wage employers will increase the wages of existing workers. The flaw in this view is that as we increase the minimum wage, employers will have a larger pool of workers from which to draw. Overtime, lesser skilled workers may not capture any higher returns. If we increase wages for the clerks of McDonalds' to $15/hr, McDonalds will redesign its positions to $15/hr - and fire much of its existing staff.
If we increase the minimum wage from $7.25/hr to $9/hr, employers will have the option to hire from all of the people willing to work for 7.26/hr to 9/hr. It is unlikely that employers will ignore the more talented workers. Yes, they will pay more, but they will require more. The low wage worker who is worth $7.25/hr isn't magically going to be worth $9/hr.
As is frequently the case, our government is willing to do really foolish things in the name of votes. My guess is that this change will not garner favor with those who actually work for minimum wage, but rather the latte sipping elite who feel compelled to throw other people's money at other people's problems.