Proponents Know That a Minimum Wage Hike Means Lost Jobs

Jan 28, 2014 - 2:15pm

Senior Vice President, Economic Policy Division, and Chief Economist

In his State of the Union address this evening President Obama is expected to call, once again, for raising the minimum wage. Proponents of this policy argue that it would materially help address poverty and income inequality, or that it’s simply a matter of fairness. Each of these arguments is highly debatable, and hotly debated.  

Minimum wage proponents, however, don’t have a strong rebuttal to the argument that a higher minimum wage destroys jobs, especially for the most marginal workers—those whose skills or circumstances are barely adequate for them to be employed. Their tepid protests to the contrary notwithstanding, proponents of a higher minimum wage know this to be true. 

One need not resort to a polygraph test to prove that proponents know raising the minimum wage destroys jobs. Simple logic will do, as demonstrated by the famous Oliver Wendell Holmes story Silver Blaze in which Holmes unravels the mystery of a missing race horse by observing that the guard dog didn’t bark.

The essential clue is exposed in the following question – if raising the federal minimum wage from $7.25 an hour to $10.50 an hour has no effect on jobs, then why stop at $10.50? Are low-wage workers so well off at this point that their circumstances cannot be further improved? Why not $11.50, or $20.50, or $30.50 an hour? 

The answer is fairly obvious: Because proponents know that at $30.50 an hour the minimum wage would destroy millions upon millions of American jobs.    

So, the argument proponents try to finesse is to acknowledge implicitly that a huge hike in the minimum wage would destroy millions of jobs (their acknowledgement demonstrated by the fact they do not propose such a hike – this is the dog that didn’t bark). And yet they argue that a lesser but still meaningful minimum wage hike would lead not to a lesser destruction of jobs, but, rather, to little or none at all, which is of course is nonsense.  A very large increase in the minimum wage destroys a very large number of jobs; a large increase destroys a large number of jobs, but fewer than are destroyed by a very large increase; and a meaningful increase destroys a meaningful number of jobs.   

What explains this sophistic sleight of hand whereby a huge minimum wage hike is recognized to be harmful while a lesser but still meaningful hike is deemed entirely benign to job creation? Of course, proponents want low-income workers to earn higher wages, have more economic security, live better lives and enjoy more opportunity.  Scrooge and Scrooge alone does not want this. But utopian wishing implemented via federal diktat cannot bring these happy consequences about without doing substantial harm to a great many the wishers seek to help. The key to creating jobs and raising wages begins with pursuing policies rooted in reality, those that are known to allow the economy to prosper and grow. 

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About the Author

About the Author

Senior Vice President, Economic Policy Division, and Chief Economist

Dr. J.D. Foster is senior vice president, Economic Policy Division, and chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.