The Economist calls minimum wage hike a “reckless wager”

More economists are warning that increasing the minimum wage by unprecedented levels—like $12 per hour or $15 per hour—would have dire consequences based on new studies. One study conducted by the American Action Forum and Manhattan Institute reveals that “boosting the minimum wage nationwide to $12 or $15 would end up hurting many of the people it aims to help.” Via Yahoo Finance,

“Yahoo Finance has an exclusive first look at the research, which finds that a Federal minimum wage increase to $15 per hour would cost the economy 6.6 million jobs and that only 6.7% of the extra $105.4 billion in new wages would go to people in poverty.

“‘If you raise the minimum wage to $15 per hour, 55 million workers will see their wages affected—we looked at what happens after their wages are affected.’”

“The study also finds that increasing the minimum wage to $12 per hour would impact 38.3 million workers. 3.8 million jobs would be lost and only 5.8% of income gained would go to workers in poverty.”

The ugly numbers help explain why the Economist issued a warning against higher minimum wages this week. The magazine referred to them as a “reckless wager.” The Economist,

“By moving towards sharply higher minimum wages, policymakers are accelerating into a fog. Little is known about the long-run effects of modest minimum wages… And nobody knows what big rises will do, at any time horizon. It is reckless to assume that because low minimum wages have seemed harmless, much larger ones must be, too.

“One danger is that a high minimum wage will push some workers out of the labour force for good. A building worker who loses his job in a recession can expect to find a new one when the economy picks up. A cashier with few skills who, following the introduction of a high minimum wage, becomes permanently more expensive than a self-service checkout machine will have no such luck… That is why Milton Friedman described minimum wages as a form of discrimination against the low-skilled…

“The irony is that minimum wages are a bad way to combat poverty. The Congressional Budget Office reckons that only one-fifth of the income benefits go to those beneath the poverty line…

“What is more, a minimum wage is not free. Someone must pay. The common refrain that companies will shoulder the burden is the product of hope rather than evidence. If the cost is passed on to consumers, the minimum wage turns into a subsidy funded by a sales tax—a revenue-raiser that, again, falls heavily on the poor.”

It’s unfortunate that Seattle’s leaders rushed into taking the “reckless wager.” Here’s hoping Tacoma does not follow suit.