How the minimum wage will hold workers back in the labor market

The government has found that raising the federal minimum wage to $15 would result in more than one million unemployed in 2025 but would also lift 900,000 people out of poverty. The Washington Post noted the “good news” in this tradeoff as “the increase in pay for workers would more than double the amount subtracted by the workers who lose their jobs.” While it may be enough to induce President Biden and Democrats in Congress to drop this standard gift to the unions, that will be unlikely.

The liberal ideology of what was supposed to be a centrist administration is showing. There is a better way to improve the conditions of those living in poverty. The answer is jobs. The left might object that such jobs are not plentiful but it is obvious that a higher minimum wage does not create any more of them and, if anything, it could make them even scarcer. If the new administration is serious about reducing unemployment, it would drop the minimum wage plans entirely, allowing many workers to find employment today and to learn some critical skills in the years to come.

Democrats were likely baffled by the increased support of Donald Trump among Black and Latino voters in the 2020 election. It was his weakness among suburban voters that had saved Biden and enabled Democrats to win both chambers of Congress. One of the reasons Trump had success with minority voters was his effort to build historic levels of employment for the lower paid members of these groups by making clear to business owners that he would not hike the federal minimum wage.

Workers without the skills and employment to earn more were enabled to compete for entry level jobs, and they did so eagerly and with success. If Trump won a second term, this process would continue, and people who started with entry level jobs would learn the skills to make them available to seek out higher wages in the future. This is because a higher minimum wage will do more than freeze entry level workers out of the labor market. It will prevent them from gaining the vital skills that enable lower income workers to better themselves. One leading economics textbook makes a point that “entry level jobs can provide workers with experience that will help them move up the ladder to higher paying positions.”

What is truly significant about jobs is not what you earn but what you can learn. The stories of people who have made it in the economy are similar. Talk to any owner of a trucking firm, a nail salon, or a restaurant, and you will almost always hear that he or she started out at a lower level for that business and learned by observing how it was financed and often how it could be run more profitably. America is full of such stories that account for its robust small business economy before the pandemic. So a higher minimum wage interferes with this process in several ways.

First, a person who is hired at a legal wage over the value of his skills is often the first to be laid off when the business faces difficulty. What the person has lost is often more than the position. The skills he or she has learned, whether it is bussing tables or loading trucks, may also be lost. Even a few months in a position could make workers more valuable to a business than wages. He or she could be kept on board when others at higher pay levels are let go. Such experience can make it easier to find other jobs in the same business or that involve similar skills.

Finally, the higher minimum wage decreases the number of lower income workers that a business could hire. This reduces the number of workers in the country overall who can learn productive skills as the economy grows. Biden is different from Trump in many ways but sadly not in the areas that allow people to join the labor market now and in the future.

Peter Wallison is a senior fellow at the American Enterprise Institute who served as White House counsel for President Reagan. He is the author of “Judicial Fortitude: The Last Chance to Rein In the Administrative State.”