William F. Buckley observed that the ideology of conservatism is reality. The reality of the minimum wage is that there is no free lunch, only trade-offs. Wealth cannot be generated by legislative fiat; a politically imposed wage increase will not magically increase worker productivity. Any income accruing to minimum- wage earners must be transferred from others, including less-skilled workers and consumers. If we could simply vote to increase the well- being of some without harming others, why stop at $11 per hour? Why not $100?
Employers respond to a higher wages in several ways. Hours or benefits might be reduced or machines might displace labor. Faced with higher costs for employing low-skilled workers, fast-food restaurants eliminate positions or reduce hours in favor of self- order kiosks. Retailers expand self-checkout, and so on. This creates opportunities for more-skilled workers, such as computer programmers, but at the expense of entry-level or semi- skilled workers whose jobs are cut or for whom jobs never materialize. Is removing the bottom rungs from the ladder of economic opportunity a worthy tradeoff?
The Massachusetts Budget and Policy Center's website claims 2,400 positions in the Pittsfield area would be "affected" by a minimum wage increase. There is no mention that, for many, this might come in the form of reduced hours or a pink slip. A more objective assessment can be found in David Neumark and William Wascher's book " Minimum Wages," a comprehensive review of empirical studies spanning 20 years. The bulk of evidence shows that the minimum wage reduces employment and earnings among the leastskilled workers.
Firms also pass the burden to consumers, through higher prices. Worse still, indexing the minimum wage to inflation risks a price-wage "cost push" inflationary spiral reminiscent of the 1970s. Higher wages lead to higher prices, pushing wages higher still, and so on.
Small businesses suffer disproportionately. The Employment Policies Institute cites Census Bureau data showing that half of those earning the minimum wage work in firms with fewer than 100 employees. A higher minimum wage on the other hand might actually benefit corporate giants such as Walmart, which pays a minority of its workers the minimum wage but caters to lower- income customers, some of whom would have greater buying power resulting from a higher wage.
" Living wage" rhetoric implies that minimum wage increases mostly help full-time, poor adults supporting families. This is unfounded. Labor economist Mark Wilson estimates that only 4.7 percent of federal minimum wage earners fit this description. Most workers earning the federal minimum wage are young workers or members of non-poor families. According to the Bureau of Labor Statistics, 55 percent of minimum- wage workers earning the federal minimum wage are less than 24 years old. The truth is an increase will largely benefit young, parttime, middle- class workers lucky enough to retain their jobs, and labor unions, which garner dues from skilled labor (and lobby extensively for a higher wage floor). Meanwhile, lower- skilled workers will lose their jobs and entrylevel job seekers will search in vain.
It's easy for populist politicians to exaggerate the benefits of the minimum wage (higher wages for the poor) while ignoring its crippling but less obvious costs: jobs not created and widely dispersed consumer price increases. If their objective is to assist the poor through redistribution, honest legislators will advocate policies that are transparent and do not fall disproportionately on their intended beneficiaries.
We can combat poverty while expanding opportunities for everyone by enhancing knowledge, and thus productivity, among unskilled workers. This requires liberating K-12 education, but that's a topic for another day.
John Barry is president and CEO of American Investment Services Inc. These views do not necessarily reflect those of American Investment Services. Right from the Berkshires is a biweekly column.