Most people resonate with the Biblical admonition to help the orphan and the widow, and they are imaging their creator when they do, since God does have special compassion to the vulnerable. So its natural and good when people and ministries focus on helping people improve their lives, in many different ways. But some ways are better than others, and to truly love our neighbor, we need to love them not only with all our heart (our compassion), but with all our mind (making sure we truly are helping them, not hurting them), and with our soul (our will translated into action). Loving our neighbor with our mind means we can’t just have good intentions–we need to consider whether our intentions will match reality.

Longer-term readers of the Berean’s blog know we pan the minimum wage (as in here and here). Why? In short, its unscientific refusal to accept economic theory and evidence (i.e., to recognize that demand curves slope downward) which suggests that it will do more harm than good. Even its proponents at least implicitly know it’s harmful, as no current minimum wage proposals ever want to just crank it up to the final number. So the Democratic plan to have a $15/hr minimum wage is phased in over multiple years. Why the phasing? If there is no harm, then do we not care enough to help someone today rather than the future?

House Democrats voted Thursday (July 2019) to lift the federal minimum wage to $15 an hour, delivering on a long-standing liberal priority that has become a rallying cry for 2020 Democratic presidential contenders.

The bill, which passed 231-199, would raise the minimum wage gradually from its current level of $7.25 an hour until reaching $15 an hour in 2025. The legislation was amended earlier this week at the urging of moderate Democrats to provide for a slower six-year phase-in, instead of five years as originally envisioned.

What is the point of phasing it in other than to give employers the ability to not have to fire workers immediately? Some critics of our critical view of minimum wage legislation on this blog suggest we have little evidence that minimum wages actually reduce low-skilled employment. Yet economic theory does not require that raising the price of one productive input necessitates an immediate reduction of that input. First, wages are only one component of the cost of a worker to the employer–there are other margins (e.g., benefits or training) an employer may target in the short run. But the Federal Reserve surveyed the wide body of economic literature on the minimum wage, and concluded:

How do we summarize this evidence? Many studies over the years find that higher minimum wages reduce employment of teens and low-skilled workers more generally. Recent exceptions that find no employment effects typically use a particular version of estimation methods with close geographic controls that may obscure job losses. Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.

What economic theory suggests is that there will be tradeoffs–there are many margins that an employer can adjust. Further, we know that with longer periods of time, employers have greater ability to adjust (e.g., demand for all goods, including labor, is more elastic with increased time) The phasing disguises the impact of the legislation as firms that hire entry level workers are able to substitute capital for labor. Can you say kiosks at McDonalds? Or self-serve checkout lines at Walmart and Home Depot?

But you’ve heard me say this before. What I didn’t know (I’m not a labor economist) is that the minimum wage is not required for millions of workers. Over at AEIR (Hat Tip to Cafe Hayek), Alan Reynolds shows some interesting data that suggests that many jobs are not lost on net with minimum wage increases (at least that is easily seen by the data), because when low skilled workers lose a job in a Fair Labor Standards Act industry, they can still get a job in non-minimum wage industries–but at a lower wage than they had before! As Reynolds notes:

Economists have endlessly debated whether or not a higher minimum wage increases the number who are unemployed. But that asks the wrong question. If a million people are compelled to switch from relatively solid jobs with large national companies to precarious jobs with tiny local companies, or switch to delivering newspapers, mowing lawns or cleaning houses for a living, they are not unemployed. They are just reemployed at jobs that commonly have less security, no health or retirement benefits and no opportunities for advancement. 

I’ll say it again–government price controls such as minimum wage legislation always lead to distortions that harm some at limited benefit to others, while reducing overall social welfare. That is not loving your neighbor.