The True Minimum Wage is $0

Aug 16, 2016 | Economy, Government & Policy

Increasing mandatory government-imposed minimum wages is all the rage this year, especially this election season.

It’s the perfect political wedge issue, right? It appeals to Americans’ generosity, sense of charity and fairness. Though it is absolutely a government-mandated handout, most people would tell you that increasing the minimum wage is just a hand-up, you know, helping people to earn a basic living wage.

Those sentiments and other will be on display this fall in Colorado as voters are asked to approve Amendment 70, a proposed phased-in increase to the state’s minimum wage to $12 by 2020.

Advocates of increasing the minimum wage always point to a 1994 minimum wage study that determined that increasing the minimum wage does not lead to job losses. The main flaw of the study, however, is that it looked at a short window of time prior to the implementation of a state’s wage increase and an even shorter time after the increase. In other words, it does reflect how the real world works. Most employers when faced with such a change take some time to sort out how to respond to a big policy change.

To really understand the impact, you have to look at what happens a year or two after such a change. When you do, it is clear that job loss is a very real consequence of increasing the minimum wages. A paper by two economists in 2013 documents that fact.

Issues like the minimum wage reveal the general lack of understanding of basic economics. If the price of something is increased significantly, fewer units will be sold. That goes for houses, tomatoes, widgets, and, yes, labor.

The real hardship of a minimum wage increase falls on youth and minorities. I’m making broad generalizations here, but statistically, both young people and minorities on average are more unskilled and harder for employers to justify employing at high wages. Instead, employers make adjustments to their current workforce’s schedule, increase training to improve productivity or add equipment to replace people.

In other words, those entry-level jobs that are so important for learning skills, building pride and a sense of self-sufficiency and building a resume become farther out of reach. For people that want those jobs but can’t get them, the minimum wage becomes $0.