Matching Seattle’s $15 Minimum Wage Will Breed Poverty

minimumwageBrookings Institution analyst Gary Burtless takes a dim view of Seattle’s $15 minimum wage, to be instituted during the coming years. His concern mainly stems from the inevitability of would-be Seattle business owners and employers setting up shop just outside the city limits, where the minimum wage is anticipated to be much lower.

But Burtless doesn’t have a problem with a $10.10 national minimum wage proposed by President Obama. And he apparently would support Washington state raising its minimum wage to match or more closely match Seattle’s $15 wage floor.

“The risk of this kind of harm is vastly smaller when the minimum wage is increased at the state or national level,” he writes. “If the Administration can persuade Congress to boost the national minimum wage, all employers—inside and outside a city’s limits—will be required to raise the pay they offer to their most poorly paid workers.”

Burtless apparently is not concerned that a $10 or $15 state or national minimum wage will price workers out of the job market — to an even greater extent than is the case now.

If Washington state or Seattle’s surrounding communities boosted their minimum wage to $15, employers would hire workers only if those workers produced at least $15 worth of output. If a worker is being paid $15 per hour, but the extra sales thanks to that worker only amounts to an average of $14 per hour in revenue, that worker is causing the employer to lose money. And therefore the worker likely would be laid off or not be hired in the first place.

To produce $15 worth of output per hour, a worker has to have skills. It could be technical skills, management skills, people skills, verbal skills, or other types of skills. It could be skills, for example, to operate a sophisticated cash register while at the same time communicating effectively to customers. Not everyone has those kinds of skills. The existing minimum wage is one reason why the unemployment rate among minority young people approaches 40 percent. A $10 and/or $15 minimum wage will price even more people out of the job market. Already, in Washington state, the unemployment rate among 16- to 19-year-olds is about 30 percent. That’s because their relative lack of skills prevents them from producing more than $9.47 per hour of output – the state’s current minimum wage.

Whenever anyone tells you that they want to raise the minimum wage to help the poor, be aware that this course of action will mostly harm the poor. It’s a big reason for the poverty and high unemployment among America’s low-skilled and unskilled.