As the start of the 2017 Texas Legislature on Jan. 10 quickly approaches, legislators have already pre-filed bills intended to improve your livelihood.
While some bills may accomplish this goal, others shouldn’t see the light of day. One of those is raising the minimum wage.
For example, House Bill 285 aims to alter Texas’ Labor Code section 62.051, which states, “an employer shall pay to each employee the federal minimum wage.”
Currently, Texas is one of 21 states that have a minimum wage at or below the federal minimum wage of $7.25 per hour.
This bill would raise the state’s minimum wage to $15 per hour or subvert Texans’ wage control to Congress if the federal mandate exceeds that level.
The bill may aim to help people in poorer districts, like District 104 in and around Dallas, where more people live in poverty than the state’s average. However, basic economics explains that a $15 minimum wage would hurt those it most intends to help.
There’s a common misconception that the labor market is different from other markets where individuals negotiate prices.
A minimum wage is a government-mandated wage control that centralizes power out of the hands of workers and employers.
There’s a rare consensus among economists that binding price controls lead to bad outcomes, such as long gas lines in the 1970s, but politics gets in the way of seeing the fallacy of a minimum wage control.
As with other markets, the labor demand curve is downward sloping — employers hire fewer workers as wages go up.
Setting a minimum wage floor above the market wage results in a bad outcome called unemployment.
It also pushes currently unemployed workers who would take a job less than the minimum wage into long bouts of unemployment and dependency on family or taxpayers.
In addition, the minimum wage puts more power in the hands of more highly skilled workers who will build and maintain labor-saving products, leading to an upward redistribution of income.
Research shows that Texas could lose nearly 1 million full-time jobs if the minimum wage was raised to $15 — more than any other state.
The state cannot afford this massive unemployment — nor can the country, as Texas has been the job creation engine for the last decade.
If employers aren’t able to quickly fire low-skilled workers, another option to avoid profit losses or shutting down is to raise prices.
As prices rise, the prevailing higher cost of living would leave the less than 5 percent of Texans who earn at or below the minimum wage no better off, highlighting the arbitrary nature of a government-mandated wage.
Instead of resorting to the misdirected policy of a minimum wage that doesn’t raise standards of living in Texas, the Legislature should focus on solving the underlying causes of poverty.
A good place to start would be with education savings accounts.
These would allow parents the opportunity to determine the type of schooling that best meets their child’s needs, whether that’s public, private, home school or some combination.
By increasing human capital, future workers can demand a higher pay.
For those already in the labor market, holding government spending increases below population growth plus inflation and putting the business franchise tax on a path to elimination would go a long way to increasing well-paying job opportunities statewide.
Raising the minimum wage may seem helpful on its surface, but a deeper look reveals that government control of wages hurts those it most intends to help.
Instead, legislators this session should support more prosperity achieved in Texas by further freeing markets from government intervention so limited taxpayer dollars fund core government provisions.
Vance Ginn is an economist and Elliott Raia is a research associate in the Center for Fiscal Policy at the Texas Public Policy Foundation in Austin.