The idea of raising the minimum wage to address income inequality is the wrong way to do it, writes columnist Richard S. Davis.
The rich get richer and the poor don’t. Or so the old story goes, repeated most recently last week. Claims that the top 1 percent prospered while the rest of us languished after the recession added topspin to efforts in Olympia to combat income inequality.
The liberal Economic Policy Institute listed Washington as one of 17 states where all income growth was claimed by the 1 percent. Nothing left over for the 99 percent.
This was a fun-with-statistics exercise to tell a preferred tale, a slice-and-dice that makes scant mention of the more important issue of economic mobility. In Washington, the EPI calculates, the average income of the 1 percent is almost 27 times higher than the average income of the rest of us. This “top-to-bottom” ratio is the 10th largest disparity in the nation.
Here’s one reason: Four King County residents sit at the top of the Forbes 400 list of the wealthiest Americans: Bill Gates (No. 1), Jeff Bezos (No. 11), Steve Ballmer (No. 23) and Paul Allen (No. 27). If they’d all move to Boise, it would reduce income inequality here, but I don’t see that we’d be better off.
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That’s the problem with the fixation on income inequality. It provides little policy guidance. It’s vexatious, invoking the politics of envy.
The better course is to concentrate on increasing employment opportunity and earnings for those being left behind in a growing economy. Accelerating upward mobility, not reducing income inequality, is the proper focus. The Washington tech innovators that revolutionized communications, computing and electronic commerce expanded global economic horizons while making themselves extremely wealthy. The 99 percent didn’t lose because the visionaries won.
Ensuring that more Washingtonians have access to affordable, high-quality education is the best way to improve upward mobility. By 2020, 70 percent of the jobs in this state will require postsecondary education, particularly in STEM (science, technology, engineering and math) disciplines, according to Georgetown University researchers. Education — funding it, ensuring better student outcomes and increasing access to postsecondary learning — is the primary focus of the 2015 legislative session. But less promising agendas are also gaining traction.
For example, last week a state House committee endorsed increasing the statewide minimum wage to $12 an hour. Sponsors, implausibly, call it an attempt to reduce inequality. Whatever else you might think about the wage bump, it wouldn’t close the gap between the fry cook and the Forbes 400. And the employer paying the higher wage is likely to be another struggler clinging to the left slope of the income curve.
While some workers might benefit, others are likely to see reduced hours, curtailed benefits or jobs lost to automation. Businesses adapt. Over the next few years, we’ll see how the Seattle experiment with a $15 wage floor plays out.
But remember that Seattle’s prosperity doesn’t extend statewide. While King County has the state’s lowest unemployment rate — 4.1 percent — 15 counties still show rates higher than 9 percent. Seattle-centric policies wouldn’t migrate well.
Despite the well-known disagreement among economists, most agree that significant increases in the minimum wage reduce employment opportunities for young and low-skilled workers. While the profile is changing, the U.S. Bureau of Labor Statistics reports that nationally about half of those working at the federal minimum wage of $7.25 an hour are ages 16 to 24 — 24 percent are teenagers. Nearly two-thirds of minimum-wage workers are employed part-time. If the goal is helping low-income adults supporting families, raising the minimum wage is a poorly targeted strategy.
New research by University of California. San Diego economists Jeffrey Clemens and Michael Wither concludes recent federal minimum-wage increases had negative effects on both employment and economic mobility for low-skilled workers. Their analysis of the federal minimum wage calls to mind last year’s controversial Congressional Budget Office analysis of proposed increases in the federal minimum wage.
The CBO estimated that a $10.10 minimum wage might reduce employment by 500,000 (give or take a half million, really) but would provide increased income for many more workers who would remain employed, most of whom have family incomes above the federal poverty threshold. Backers of the wage hike emphasized the income gains. But I think the job losses — reducing employment opportunities for young and unskilled workers seeking to enter the workforce — are of greater concern.
Proponents argue that it’s worth the risk or, even, that there is no risk. That seems like a cavalier dismissal of possible consequences, particularly when voiced by people who are risking nothing themselves.
The best way to increase the earnings of low-skilled workers is to help them become higher-skilled workers. Despite its apparent popularity, addressing inequality by raising the minimum wage won’t solve the problem. Expanding opportunity through training and education is the only proven strategy for increasing upward mobility.