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Saturday, August 3, 2019

Why Minimum Wage Laws Are Inside-Out and Upside-Down

Minimum wage laws ignore the inherent diversity of humanity.

Image Credit: Flickr-BagoGames | CC BY 2.0 (

My favorite Pixar movie is probably Inside Out. It takes place in the head of an 11-year-old girl named Riley and follows her personified emotions as she adapts upon moving from Minnesota to San Francisco. It’s a high-concept movie and leverages the idea of how much our values and personalities are shaped by our own unique experiences. We are all different, and we all live different lives.

Laws tend to ignore the inherent diversity of humanity. They take a person’s or small group’s particular desires and force everyone to conform to them. Their one-size-fits-all approach treats everyone’s preferences, contributions, and circumstances as the same, and nowhere is this distortive and arrogant power clearer than with the minimum wage.

While everyone would like to be paid more, getting paid more always comes at a cost.

While everyone would like to be paid more, getting paid more always comes at a cost. Jobs might have more educational requirements, a less predictable work schedule, no health care, or come with the danger of no job at all. With risks like that, it’s understandable that not everyone would want more dollars per hour.

Inside Out reminds us that people are vastly different, a lesson that Pixar’s home of Emeryville, California, decided to ignore when it passed the highest minimum wage in the country: $16.30 an hour. The city council recently reversed an initial exemption for small businesses, which would have to pay their workers “only” $15 an hour. Every one of Emeryville’s 10,000 residents will be subject to the highest minimum wage in the country, like it or not.

A Local Minimum Wage Is Harmful…

Companies like Pixar will surely be able to handle the minimum wage increase, but just as people differ, companies differ, as well. Small businesses are particularly prone to going under thanks to a minimum wage increase, which is why they were able to pressure lawmakers for an exemption, at least initially. It’s not an unusual trick: Many states have different minimum wages for small businesses. However, a state arbitrarily defines “small.” But Emeryville businesses have good reason to be particularly concerned.

The inherent diversity of human society makes that “solution” more problematic than it’s worth.

Emeryville is a scrap of town smushed between Oakland and Berkeley. At just 1.28 square miles, many small businesses like restaurants are not in a position to pass on higher costs in the form of higher prices because customers can, sometimes literally, walk to a cheaper competitor.

At $13.80, Oakland’s minimum wage is noticeably lower, and given the slim profit margins of some businesses, California’s upcoming $15 minimum (effective 2022) might still seem comparatively tempting. The jobs that Emeryville’s city council wants to make more lucrative may go away entirely.

And a Larger Scale One Is Even Worse

If the problem is that activity might leak out to other areas, it’s tempting to conclude that Emeryville’s minimum wage should be applied to all of the Bay Area, or all of California, or all of the country at large. A person might walk a couple of blocks for a cheaper meal, but few will travel to Canada just to save a few bucks on dinner.

The inherent diversity of human society makes that “solution” more problematic than it’s worth. Emeryville’s high housing costs motivated the city council to pass the minimum wage, but housing costs are not high everywhere, and neither is median income, for that matter. A minimum wage of $1 an hour wouldn’t have any impact because everyone in the US would make more than that by market forces alone, but in countries where many people might only live on one or two dollars a day, that law could destroy their economies. To paraphrase Edward Murrow, minimum wage advocates are prisoners of their own experiences.Arkansas’s relatively modest $11 minimum wage will be the highest effective minimum wage in the country when it comes into effect in 2021.

To paraphrase Edward Murrow, minimum wage advocates are prisoners of their own experiences. When they decide certain wages are unacceptable for everyone no matter what, they are pulling their own values out of their heads and imposing them on everyone else. It’s dangerously arrogant, and it’s a problem that gets worse the larger—and thus more diverse—the group you try to meddle with.

Humanity’s diversity makes the one-size-fits-all approach of the minimum wage problematic. Even high wage states have poor areas, and even towns as small as Emeryville have low skilled workers who could see their opportunities disappear as a result of the good intentions by their city council. There are better ways to solve Emeryville’s problems.

The Problem Is Really Housing

Like so many issues in the Bay Area, this issue really boils down to sky-high housing prices. The median price of each square foot of living space in Emeryville is $613, over $100 more than the metro area’s average and much higher than the nationwide median of $157. With nearly four times the housing price of the rest of the country, it’s understandable that the city council wants to help people struggling to make ends meet.

It would be better if the city council focused all its attention on building housing. Emeryville’s population density of about 9,000 per square mile might seem dense, but it’s small compared to the Israeli town of Givatayim, which has the same land area but holds more than five times as many people. It’s possible to add a lot of new housing, but Emeryville’s city council has to legalize that kind of density.

The only good minimum wage is the one that exists in your own head.

The area surrounding Emeryville is even worse, home to vast tracks of low-density housing. Perhaps the city council should be pressuring their neighborhoods to liberalize their zoning laws rather than trying to impose their idea of an acceptable wage onto others. For all of the city council’s good intentions, an artificial lack of supply is the source of California’s problems—something the state is slowly coming to grips with.

The minimum wage does not address the Bay Area’s housing shortage. At best, it’s a distraction that prevents the city from tackling the real problem. As a law, its understandable goals are forever in conflict with the inherent diversity of society. We are all different. Trying to turn a person’s personal preference into a law for everyone is as arrogant as it is harmful.

The only good minimum wage is the one that exists in your own head. It’s the one you assign for yourself, the one that changes based on the nature of work, the time of day, your mood, your constraints, and your goals. It’s unique to you and only applies to you. Anything else is not only inside-out but also upside-down.

  • David Youngberg is an associate professor of economics at Montgomery College in Rockville, MD.