The Congressional Budget Office has found that the Biden administration’s federal minimum wage hike to $15 per hour over four years would result in 1.4 million unemployed by 2025, but would lift 900,000 people out of poverty. The Washington Post helpfully reported the “good news” in this cold-blooded trade-off: “The net pay going to the country’s workers would grow substantially, by $333 billion, would more than double the amount subtracted by the workers who will lose their jobs, according to the estimate.”
This may be enough to induce the Biden administration and the Democrats in Congress to drop this standard gift to the nation’s unions, but that’s unlikely. The firmly progressive ideology of what was supposed to be the centrist Biden White House is showing.
There is a better way to improve the conditions of those living in poverty; it’s called a job. The left might object that the jobs aren’t plentiful enough, but it’s obvious that a higher minimum wage will not create any more of them; if anything, it will make them scarcer. If the Biden administration were serious about reducing unemployment, it would drop the minimum wage plan entirely, allowing many unskilled workers to find employment this year and to gain job skills in years to come.
The Democrats have seen and probably been nonplussed by the increased support for Donald Trump among black and Latino voters in the 2020 elections. It was only Trump’s weakness among white suburban voters that saved Joe Biden and enabled the Democrats barely to hold on to power in the House and Senate.
One of the reasons for Trump’s success among these traditionally Democratic voters was his effort to build historic levels of employment for the lowest paid members of these groups by making clear to the business community that he would not raise the federal minimum wage of $7.25 per hour. People without the skills or employment experience to earn more were enabled, then, to compete for entry level jobs, and they did so eagerly and successfully. If Trump won a second term, this process would be continuing, and people who began with entry level jobs would be acquiring experience today that would make them employable at higher wages in the future.
This is because a minimum wage will do more than freeze low-skilled workers out of the workforce; it will prevent them from learning the skills that have always enabled low-skilled Americans to better themselves. A leading economics textbook makes this point: “low-paying, entry level jobs can provide workers with experience that will help them move up the job ladder to higher paying positions.”
What is really significant about a job is not what you earn, but what you can learn. The stories of those who have succeeded in the economy are all essentially the same. Talk to the owner of a successful trucking firm, a restaurant, or a nail salon, and you will almost certainly hear that he or she started out at the lowest level in that business and learned by watching how it was financed and carried on, and often how it could be improved or operated more profitably. America is full of these stories, which account for its robust small business economy before the pandemic.
A minimum wage interferes with this process in several ways. First, a person who is hired at a prevailing legal wage that is higher than the value of his skills is often the first person to be laid off when the business encounters difficulty. This usually means that what the employee has lost is more than a job. What skills he or she has learned, whether it is bussing tables, loading a truck, or working in a kitchen, may be lost. But even a few months of low wage learning can make a worker more valuable to an employer than his wage. It can mean that he or she is kept on board even when others at higher pay levels are let go. Even if the job is lost, the limited experience she has received will make it easier for her to find a new job in the same business or that involves similar skills.
Finally, a minimum wage reduces the number of low-wage workers that a business can hire, and thus the number of workers nationally who can learn a basic business or productive skill as the economy grows. Yes, the Biden administration is different from the Trump administration, but sadly not in the areas that would help unskilled workers join a growing economy.
Peter Wallison is a senior fellow at the American Enterprise Institute who served as White House counsel for President Reagan. He is the author of “Judicial Fortitude: The Last Chance to Rein In the Administrative State.”