Biden's minimum wage gambit will cause unemployment and recession
Puerto Rico has had a long history of being harmed by Washington overreach. The island was once home to a thriving needlework industry until the federal minimum wage destroyed its competitive advantage. The same unintended consequence happened again in 1974 when increases in the minimum wage cut 32 percent of low wage jobs and triggered a mass migration off the island.
Now history threatens to repeat itself once more as the Biden administration tries to more than double the federal minimum wage to $15/hour. Such an act would deal another blow to the struggling island—and many other parts of the United States.
By forcing up the cost of employment the minimum wage hurts the very people it tries to assist, and creates the real risk of losing their job altogether. Adjusting this single minimum wage by median household income gives us an idea of how widespread the disemployment effect in different states would be and illustrates why this One Best Way approach is so damaging to Puerto Rico and many other parts of the country.
The Impact of the Minimum Wage Changes By Geography
Anyone who’s passed introductory microeconomics knows that price controls, like the minimum wage, don’t always affect the market. A $50,000 minimum salary for medical doctors wouldn’t change anything because market forces already push their salaries well above that. But force cashier salaries to $50,000 and you’ll see a lot more self-checkout machines.
So it’s no surprise that the District of Columbia, with one of the highest median household incomes in the country, already has a minimum wage of $15/hour. (Some states have passed a $15 minimum wage but D.C.’s is the only one currently in effect.) When the typical household makes over $93,000 a year, $15 an hour doesn’t seem like that much.
The same cannot be said for states like Mississippi, Louisiana, West Virginia, and New Mexico—where the median household income is about half that of D.C.—and in Puerto Rico where it’s less than one-fourth. Typical incomes are even lower in rural areas. To impose a single $15/hour standard ignores this nuance. It pretends that everyone is in the same circumstances and has the same opportunities. Such thinking is like the conspiratorial ramblings of a drunk—with equal amounts of foolishness and confidence.
The Effective Minimum Wage for Some States Will Be Over $25/Hour
Even minimum wage advocates (should) recognize there are limits to boosting income by government fiat. While $15 may seem reasonable to its fans in D.C., Massachusetts and New Jersey, it’s easier to see the disemployment effects of a $25 or $30 minimum wage.
It’s helpful then to adjust the $15 minimum wage for 2019 median household income in every state and Puerto Rico to get an idea of what a uniform standard would mean for disparate parts of the country. (You can also adjust for cost of living, which is good for estimating what the real “living wage” is in various states. Adjusting for income is good for getting an idea of how many people will lose their job when a single minimum wage standard is imposed.)
Biden's one size fits all approach is not intelligent and will be counter-productive. It will be devastating for places like Puerto Rico. It demonstrates a reckless disregard for the facts.