Why a $15 minimum wage is “good” for rich people and bad for the less well off

wages cc cc

We’ve been covering the minimum wage debate since its most recent flare up a few years ago and our assessment is the same. If the government decrees that a job be paid $15/hour that does not mean that a job which pays less than $15/hour previously will suddenly be WORTH $15/hour. The government can not just upend supply and demand. The market will just adjust to the new reg. For businesses which operate on thin margins, and many do, particularly those who employ minimum wage workers, jobs and hours will disappear. In some cases entrepreneurs will just close shop altogether. If a minimum wage is far out of line with the real world wage for a job then pain is the result for workers and businesses.

But no one but we free marketeers says this of course. Right now for instance the $15/hour agitators are celebrating in California which will soon phase in a $15/hour minimum wage, even though Governor Brown (who signed the legislation) said a $15/hour minimum wage makes “no economic sense.”

But he understands that raising the minimum wage makes political sense, at least for him and at least right now. Many voters think a raise is headed their way. They will soon find that this is likely not the case.

Consider that we have a massive pool of untapped unskilled workers in this country. There is lots of slack in employment on the lower skill end. Raising wages by decree when the labor supply tells us that if anything wages should be headed down is just setting the stage for future (probably near future) disruption. In the end this effort to raise minimum wages will further marginalize the poor whose labor is not WORTH $15/hour.

A $15/hour wage will undoubtedly increase welfare rolls. And this is not such a bad thing from the cynical perspective of some politicians.

There will be winners in a $15/hour minimum wage world however. (Besides the pandering politicians.)

For the businesses which have the margins to absorb such a minimum wage hike they will have a higher quality pool of talent from which to choose. You will see that many jobs currently filled primarily by people new to this country, the less educated, etc. will be taken up by better skilled and very likely better educated employees. Many a college graduate right now would kill for a $15/hour job. Head to head versus a recent immigrant with little to offer, who do you think is more likely to get the job? That’s right, Mr. or Ms. College graduate. At least now they can make their minimum Sallie Mae payment.

Who’s left out in the cold? The people who have those jobs now. The people who think they are getting a raise.

Of course the above situation applies to businesses which don’t simply automate the jobs which formerly were performed by humans. Right now, all across the country the movement in fast food is toward kiosks for orders. Soon food will also be prepared, likely with higher quality, with increased speed, and more consistently with robots. This is happening already in fact in some places such as San Francisco. (Home of a relatively high minimum wage.)  

So the robots have jobs. The robot repairmen have jobs. Who doesn’t have a job? The people who used to work for a lower wage.

robot-chef-cc-565x340

And the nasty truth (which no one will ever admit)  is that lots of good “liberal” urban rich folks will like this result. Gone will be the hoi poloi, the riff raff, the uncomfortable looks from the less fortunate service people. Heck, if McDonalds can’t afford to operate in the city anymore few of the well heeled will shed a tear. Just make sure the Trader Joe’s stays open. Organic Kobe beef is practically impossible to find. (But easier now that all the poor people have been run out of town.)

So who “wins” and who loses when the minimum wage is raised far beyond real world wage levels is not who many people think.