Minimum Wages Are Popular — And Unwise

By John Hood

RALEIGH — As a Freedom Conservative, I recognize that some policies I favor are broadly popular, others draw mixed reviews, and a few are broadly unpopular. I also recognize that, as a commentator rather than candidate for office, I enjoy a greater latitude to advocate policies I think are wise even though most of my fellow North Carolinians do not (yet) agree with them.

One example is a minimum wage set by government diktat. The United States specifies a national minimum wage of $7.25 an hour for most jobs. Most industrialized countries set wage floors, often higher ones in real terms than America’s. Furthermore, most states set minimum wages within their jurisdictions that are higher than the federal floor, including Florida at $14 an hour, California at $16.90, New York at $17, and the District of Columbia at $18.40.

North Carolina is one of the states that hasn’t raised the legally required minimum. That is one reason the Tar Heel State fares well in national comparisons of state regulatory burdens. For example, in the Fraser Institute’s most recent Economic Freedom of North America Index, North Carolina ranks 7th. Among our neighbors, only Tennessee (2nd) is rated higher in economic freedom.

I think employers and employees should be free to strike their own bargains. If I offer you $5 an hour, you won’t work for anything less than $10, and I deem that too high a price to pay for your labor, then we make no deal. Or we might meet in the middle, at $7.50, and become colleagues.

That doesn’t mean I see no role for government. Recourse to the courts to resolve contract disputes is essential. Certain forms of regulation may also be necessary to deter fraud and other forms of abuse — to ensure that the explicit or implicit bargain struck represents a true meeting of the minds. But I don’t think that, in a free society, regulators or politicians possess either the requisite knowledge or the moral authority to determine what a “fair” rate of compensation is for any or all jobs.

Still, I freely admit that most North Carolinians, and very possibly most of my readers, do not agree with this view. They believe it is possible and prudent to set wage floors.

Over the decades, I have argued that even when judged on its own terms — making poor people better off — the minimum wage is ineffective. Many workers gain higher incomes, of course. But many of these beneficiaries of the policy are not poor. Among the ranks of minimum-wage workers are millions of teenagers, young adults, or retirees whose household incomes far exceed the poverty level. At the same time, a minimum wage clearly makes some workers worse off. Often young and inexperienced, they do not yet possess the skills required to produce enough output per hour to make it worthwhile to hire them at the minimum. In response, employers redistribute the workload among fewer, higher-paid employees or automate tasks such as greeting customers, taking orders, accepting payment, and delivering goods or services. The result is that folks who are, indeed, disproportionately poor fail to gain employment at all.

Whether minimum wages produce joblessness is a question scholars have explored for many decades. Until the 1980s, the vast majority of studies showed a negative relationship between minimum-wage hikes and job creation or employment rates. Over the ensuing couple of decades, some scholars employing new models and empirical techniques challenged the traditional view with papers that showed scant effects on or even increases in employment.

I still think the traditional view is correct. In a comprehensive survey published in the journal Industrial Relations in 2022, University of California-Irvine scholar David Neumark and economist Peter Shirley concluded that there was “a clear preponderance of negative estimates” in the scholarly literature, especially “for teens and young adults and the less educated.”

I also think citing such findings is unlikely to change many minds. That won’t stop me from trying.

John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy with American history (FolkloreCycle.com).