$12 per hour minimum wage?

Ron Unz writes in the NYT:

Raise the Minimum Wage to $12 an Hour

Ron Unz, a software developer and publisher of The Unz Review, is the chairman of the Higher Wages Alliance, which is sponsoring a California ballot initiative next year to raise the state minimum wage to $12 per hour. 

DECEMBER 4, 2013 

Tens of millions of low-wage workers in the United States are trapped in lives of poverty. Many suggestions have been put forth to improve their difficult situation, ranging from new social welfare programs to enhanced adult education to greater unionization. But I think the easiest solution is also the simplest: just raise their wages.  

The current federal minimum wage is $7.25 per hour and hiking it to $12 would solve many of our economic problems at a single stroke. 

A $12 minimum wage is hardly extreme or ridiculous. At the 1968 height of our post-war economic prosperity, the American minimum wage was over$10.50 in current dollars, and setting the rate at $12 today would represent a real rise of merely 11 percent over a 45-year period, which seems reasonable since worker productivity has grown by over 115 percent during the same period. 

The minimum wage in France is almost $13 while Australian workers benefit from an hourly minimum wage of around $15, together withunemployment of just 5.7 percent.  

Walmart is America’s largest private employer and 300,000 of its workers haveaverage wages of just $8.75 per hour, forcing many of them to receive food stamps and other government welfare benefits to survive. But if a minimum wage hike boosted their pay to at least $12 per hour, Walmart could cover the costs by a one-time price rise of just 1.1 percent, and the average Walmart shopper would only pay an extra $12.50 per year. Meanwhile, a $12 minimum wage would increase the incomes of America’s lower-wage work force by a total of over $150 billion each year, shifting those huge sums from the pockets of the sort of people who don’t shop at Walmart to those who do. A minimum wage of $12 per hour would be very good for Walmart’s business.  

And not just Walmart. America’s low-wage families tend to spend every dollar they earn, so a large minimum wage hike would constitute an enormous, permanent economic stimulus package, but one funded entirely by the private sector. Since wages would be rising nationwide, businesses could raise their prices to cover much or most of the added costs. Low-wage workers tend to be employed in the non-tradeable service sector, making their jobs relatively safe from foreign competition or automation. They’d keep their jobs, but their incomes would rise by 30 or 40 percent.  

The impact on U.S. households would be enormous and bipartisan. Some 42 percent of American wage-workers would benefit from a $12 minimum wage and their average annual gain would be $5,000 per worker, $10,000 per couple, which is very serious money for a working-poor family. White Southerners are the base of today’s Republican Party, and 40 percent of them would gain, seeing their annual incomes rise by an average $4,500 per worker. If Rush Limbaugh -- who earns over $70 million per year -- denounced the proposal, they’d stop listening to him. Hispanics would gain the most, with 55 percent of their wage-workers getting a big raise and the benefits probably touching the vast majority of Latino families.  

Ordinary taxpayers would be the other great beneficiaries, saving many tens of billions of dollars each year in payments for Food Stamps, the Earned Income Tax Credit, housing subsidies, and other social welfare programs. Businesses should pay their own employees rather than quietly shifting the burden to government programs and the American taxpayer. Conservatives and free-market supporters should endorse this simple idea.  

The best way to help low-wage workers is to raise their wages.

About a dozen years ago, I started writing an article about why a proposal to raise the minimum wage for workers in Santa Monica's beachfront hotels to something like $10.50 was, logically, a terrible idea. As an old Econ Major, if there was one thing I knew it's that the Minimum Wage is Bad. 

But I eventually gave up the project because it started to seem like a pretty good idea. Maids' wages make up a small fraction of the cost of staying on the beach in Santa Monica (much more of the cost of a room is the cost of the land it's on), so it seemed improbable that this law would turn Ocean Blvd. into Desolation Alley with tumbleweeds blowing past shuttered resorts and starving, weeping unemployable ex-workers.

This is not to say that the traditional Econ 101 critique of minimum wage laws is completely wrong. Raising the minimum wage to $100 per hour would destroy the above-ground economy. 

What about the converse? It might even be true that cutting the minimum wage to $3 per hour would increase employment. But if so, would then cutting it from $3 to $2 be another slam dunk great idea? From $2 to $1? I don't think so. Diminishing marginal returns set in pretty rapidly.

So, there's a range of plausible minimum wages at which it's not an obviously a bad idea. The delicate part is finding where you can push the envelope without blowing a hole in it. 

One way to accomplish that is regionality. High "living wage" minimums in California coastal paradises have worked fine, but that doesn't mean the same number wouldn't cause high unemployment in rural Mississippi. Ron's initiative push for a $12 minimum for all of California sounds pretty sensible for such an expensive state, but could cause big trouble if Congress extended it to low cost of living Oklahoma.

A half century ago, debates over the minimum wage in Congress tended to break down along regional lines. Northern industrial states wanted high national minimum wages to discourage factories from relocating to low wage Southern states. 

So a minimum wage works as an internal protectionist measure. My views on protectionism are moderate. I am sympathetic to movement of jobs to cheaper locations in the United States, but I am also sympathetic to some degree of stability and restraint. Statesmanship consists of finding mechanisms that accommodate those contrary goals efficiently. (My views on outsourcing / insourcing across our national border are similarly moderate, which is why I'm considered such an extremist.)

Another issue is how a higher minimum wage would interact with Obamacare's employer mandates. The term "Double Whammy" springs to mind.

A few other thoughts:

Why not a $15 per hour minimum for non-citizens?

Why not a $6 per hour minimum for teenage citizens? And a $9 per hour minimum for 20 to 22 year old citizens?

A high minimum would only seem to work when tied into effective job-site enforcement of immigration laws. But, put them together and you might really have something.

Of course, the worst solution would be the inverse result where huge numbers of currently employed American citizens get squeezed out by a higher minimum wage and get replaced by new illegal aliens working off the books for less than the nominal minimum.