Tuesday, April 5, 2016

Good Politics vs. Good Policy: The Case of the Minimum Wage

At The Intercept today, there is a glowing piece by Zaid Jilani celebrating the recent passage of a $15 minimum wage law in California and New York. The framing of the article is that of a David vs. Goliath story in which innovative organizers won against overwhelming odds. To help make this case, Jilani quotes a number of articles and commentary from major news organizations which all said the "Fight for 15" couldn't be won--that it was unrealistic and overly ambitious.

Clearly, the skeptics were wrong about this.

Several states and localities have all passed legislation moving to the minimum wage, and the popular, if quixotic, campaign of Bernie Sanders offers further evidence that many Americans are ready to support preferred leftist economic programs like the minimum wage, expanding social security, etc.

Even so, I'm inclined to forgive at least a couple of the skeptics. Their flaw was that they were looking at the situation from the perspective of economics, not politics. For instance, here's the quote from the Bloomberg piece that Jilani cites:
It’s unlikely restaurant workers will get to $15 an hour anytime soon. Many of these jobs don’t require highly skilled workers, so the candidate pool remains large and there’s usually little incentive for restaurants to pay richly.
What the article is saying here is that there is too much supply (workers) in the labor market to allow prices to rise. If many people are looking for work, companies have no reason to raise the wage to attract workers. Workers will come to them regardless because it's probably still better than being fully unemployed. So given that reality, it's unlikely that the wage would rise that high, if left to natural market forces.

But the fight for raising the minimum wage has never been about economics or the market. Economically speaking, we've previously explained why increasing the minimum wage is a bad idea that would almost certainly make at least some poor people worse off. That said, it's important not to confuse bad policy, with bad politics. The fact is that increasing the minimum is actually an excellent political cause.

To see this, it's useful to consider the different groups involved. In support of such a law, we have the following:

  • Low-wage workers - For this purpose, this includes anyone who makes less than $15/hour currently.
  • Unions - Although many union employees make more than $15/hour, they still tend to support this cause. Though it doesn't really matter for our purposes, it is interesting to note there are two leading possible explanations for why unions tend to support this legislation. (This is a serious tangent; we'll forgive you if you skip it.)
    • Optimistic leftist version - Unions are fighting the good fight for all workers. So even though most of their members won't stand to benefit from this law, they support to stand in solidarity with their fellows.
    • Cynical economist version - Unions are typically comprised of high-skilled workers that make more than any plausible minimum wage. However, the trades these members work in typically can be done either by a small number of high-skilled people or a larger number of low-skilled people. For instance, a business might be able to achieve one task using a single high-skilled union employee that makes, say, $24/hour, or three low-skilled employees that require some training and which make just $8/hour. Before the minimum wage increases, these options are equally desirable. Once the minimum wage goes up, however, the high-skilled union employee clearly becomes the better choice.
  • Well-meaning citizens - As it stands, the minimum wage actually covers a relatively small group of people. Still, most voters do not understand economics, and, particularly on the left side of the spectrum, they are likely to support this as a government policy that can help the poor.
Meanwhile, the groups that would tend to oppose this are as follows:
  • Business owners with low-wage workers - Obviously, this group is far less numerous than the actual low-wage workers.
  • Free market / Austrian economists - It used to be the case that all economists were united in their opposition to the minimum wage, just as they oppose, in theory, all other arbitrary price floors and ceilings imposed by the government. Now, however, the position is confined mostly to free market-leaning economists, which, unsurprisingly, seem to hold far less sway in government.
  • Right-leaning and/or libertarian voters - If they didn't fall into one of the preceding groups, there is a small segment of the population that is inherently skeptical of anything the government does. They might tend to oppose the minimum wage out-of-hand. But they are few in number and unlikely to see it as a key issue.
When you do the math, the numbers are going to come out in favor of minimum wage proponents every time. And perversely, the higher the minimum wage goal is raised (above the existing minimum), the more disastrous its effects, and also the more supporters it is likely to acquire. That is, if a $15 goal might affect (and thus gain the support of) 15 million people, imagine how many more we could get if we bump it up to $18! Indeed, there is every reason to expect that, regardless of whether the #FightFor15 fully succeeds, the #TweetFor20 might follow shortly thereafter.

Of course, when the minimum wage actually does get fully implemented, it is almost certain to backfire in a major way--particularly for the dramatic increase required to reach $15 in most places. This would seem to be a long-run political liability. And if more of the electorate understood basic economics, it would be. But since they do not, it's actually a political asset. The cycle runs something like this:

Large increase in the minimum wage --> businesses lay off workers or decide to hire fewer people in the future --> worse job prospects for low-skilled individuals who demand answers --> politicians blame greedy businesses for not hiring workers like a good patriot --> workers buy the argument --> politicians can push for more aggressive government interference to "help" the economy, which struggles partly because of problems they introduced --> it backfires --> businesses get blamed --> rinse, repeat.

In this way, bad policies usually still make excellent political sense. And this fact probably explains why we have so many of them. The minimum wage is a case in point.

As a practical matter therefore, we should not be surprised that the #FightFor15 is doing as well as it has. In reality, it's not winning in spite of overwhelming forces against it. It's winning because it was never really the underdog to start with.

No comments:

Post a Comment