The #Fightfor15 is old news, apparently. Some progressive activists and academics are now arguing that the minimum wage should be closer to $26 an hour, claiming that this is the level it would’ve reached if wages had kept up with productivity in recent decades.
The online discourse all started after the publication of a recent piece from the left-leaning Center for Economic and Policy Research titled “The $26 an Hour Minimum Wage.”
“[A $26 hourly minimum wage] may sound pretty crazy, but that’s roughly what the minimum wage would be today if it had kept pace with productivity growth since its value peaked in 1968,” progressive economist Dean Baker wrote. “And, having the minimum wage track productivity growth is not a crazy idea. The national minimum wage did in fact keep pace with productivity growth for the first 30 years after a national minimum wage first came into existence in 1938.”
“Think of what the country would look like if the lowest paying jobs, think of dishwashers or custodians, paid $26 an hour,” Baker continued. “That would mean someone who worked a 2000 hour year would have an annual income of $52,000. This income would put a single mother with two kids at well over twice the poverty level.”
This favorable analysis of the prospect of a $26 minimum wage was reported in many left-leaning media outlets, such as CBS News and the Independent.
Perhaps relatedly, former-Labor-Secretary-turned-progressive-commentator Robert Reich recently tweeted out that “Today seems like a good time to remind you that if wages had kept pace with productivity gains over the last 50 years, the minimum wage would be $24 an hour. $15 is the floor, not the ceiling, of what working people deserve.”
Today seems like a good time to remind you that if wages had kept pace with productivity gains over the last 50 years, the minimum wage would be $24 an hour.— Robert Reich (@RBReich) September 6, 2021
$15 is the floor, not the ceiling, of what working people deserve.
Minimum wage would be $26 an hour if it had grown in line with productivity https://t.co/IF6okvrXSf— CBS News (@CBSNews) September 6, 2021
To be clear, support for a $26 minimum wage is still not the majority position on the American Left. Yet the movement is gaining enough traction for the prospect to be worthy of evaluation—and it’s a frightening one.
Let's assume, for the sake of argument, that Baker is right about productivity and wages, and ignore the fact that this disparity may itself be caused by government rather than private businesses (see https://wtfhappenedin1971.com/). This still doesn't imply we should raise the minimum wage. Why?
Well, while it might sound idyllic for everyone to make $26 an hour, idealism can’t change economic reality. And, as economist Thomas Sowell famously explained, “the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or fail to find jobs when they enter the labor force.” (Emphasis mine).
Why is the real minimum wage zero? Because there’s always the option not to employ the worker at all. And if the minimum wage is arbitrarily set at a level above the value of the worker’s labor, employing them would be charity, not business. As nice as it may be to think that dishwashers would receive $26/hour, in many cases, businesses would invest in technology to do the job, hire illegal immigrants, or otherwise contrive to hire far fewer dishwashers.
“The state can legislate a minimum wage rate,” Nobel-Prize-winning economist Milton Friedman famously explained. “It can hardly require employers to hire at that minimum all who were formerly employed at wages below the minimum. It is clearly not in the interest of employers to do so. The effect of the minimum wage is therefore to make unemployment higher than it otherwise would be.”
Many studies have confirmed that a $15 minimum wage would kill millions of jobs in the US. We can reasonably assume that for a $24 or $26 minimum wage, the job-killing effect would be far more pronounced. In fact, the progressive economist who started this whole conversation, Dean Baker, acknowledged as much.
“The $26 an hour is useful as a thought experiment for envisioning what the world might look like today, but it would not be realistic as policy for local, state, or even national minimum wage without many other changes to the economy,” he wrote. “A minimum wage this high would almost certainly lead to large-scale unemployment, and that would be true even if it were phased in over five or six years.”
However, Baker doesn’t view this as an insurmountable hurdle. He argues that “we [would] have to make many other changes in the economy to make [a $26/hour minimum wage] possible,” citing massive regulations and taxation of finance, banking, and corporations. “These changes are well worth making.”
Of course, we all want to see wages go up. But as evidenced by recent raises for Walmart and Costco employees, this occurs in free markets naturally because employers are forced to compete for labor. It can’t occur with top-down force, at least, not without serious fallout.
So, here’s hoping that this misguided, extreme minimum wage argument doesn’t catch on among progressives. A $15 minimum wage would have bad enough economic consequences. To impose a $26/hour wage would do tremendous damage and leave many workers out of a job entirely.
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