President-elect Joe Biden says that workers are “entitled” to a $15 minimum wage, despite widespread business closures and pervasive joblessness. A new bill filed by a progressive member of the Texas Legislature may beat Biden to the punch, though, taking the state in a direction that it has resisted for more than 10 years.
House Bill 60 demands that every employer pay employees no less than $15 per hour. This bill is even more ambitious than previous legislation that stalled in 2019, which proposed boosting the minimum wage from $7.25 to $10.10 an hour. Despite both bills’ good intentions, the Texas economy cannot afford another big government mandate. The latest economic data suggests job creators face an uphill climb already and increasing their costs will further hobble the recovery process.
Mandating higher wages will force employers to fire their less-experienced employees, who are mostly teenagers or young people most in need of their first job experience. Robert Tennant, Department Chair of Finance Accounting and Economics at Texas A&M, says a drastic increase in the minimum wage to $15 would do more harm than good. He warns that a substantial increase will shock the entire system, forcing small- and mid-sized business owners to make drastic decisions from an employment standpoint. Those most at risk are the low-skilled and inexperienced.
Another report from the Congressional Budget Office suggests Texas could lose more than 370,000 jobs over the next six years if the law were enacted. This would be in line with the experience of others. A study conducted in Seattle that evaluated the wage, employment, and hours effects of Seattle’s Minimum Wage Ordinance showed that the ordinance caused hours worked by low-skilled workers to fall by 9.4% and resulted in a loss of 3.5 million hours worked per quarter. Other estimates from the same study showed that the number of low-wage jobs declined by 6.8%, representing a loss of more than 5,000 jobs.
These data present a stark reality that our policymakers and lawmakers must face head-on: the benefit is not worth the cost. Economics teaches us that real tradeoffs require balancing various kinds of risk. The risk presented here—drastically higher unemployment for certain demographics, fewer work hours available, and slower economic growth—is simply not worth the reward.
The most vulnerable workers are always the ones most harmed by minimum wage laws. Minimum wage laws reduce lower-skilled workers’ employability in relation to higher-skilled workers by artificially raising the wages of low-skilled workers without increasing their productivity. This goes against sound economics.
Though policies like rent control or increases to minimum wage might be born of good intentions, their results can be destructive. In a price-coordinated free market economy, goods flow to their most valued uses. Wages go beyond payment of income to individuals; they act as an incentive to companies. As famed economist Thomas Sowell once said, “No one is employable or unemployable absolutely, but only relative to a given pay scale.”
Wage increases should ideally be guided by the free market. Higher demand for good people forces wages to rise naturally, not artificially. The Trump administration’s economic policies led to more jobs and higher pay, not by artificially hiking the minimum wage requirement but by promoting economic freedom through deregulation. Wage growth for many historically disadvantaged groups is now higher than wage growth for historically advantaged groups.
The concept of choice is at the heart of economics. Making a choice means having to face the reality that there are trade-offs and opportunity costs inherent in every decision we make. The economic effects of the COVID-19 pandemic have laid bare this stark reality. Artificially raising the minimum wage drastically would only exacerbate the pandemic’s already brutal economic effects.