“Opportunity is who we are.”
So said President Obama in this Tuesday’s State of the Union address.
Whenever I listen to the President speak, I’m always struck at how many isolated statements I agree with even as I am vehemently disagreeing with others. As far as I know, we both want to further human flourishing; we just have very different ideas about how to go about it.
For example, the President mentioned raising the minimum wage from $7.25 to $10.10, a policy move that I think is extremely unwise. Before I go into why I disagree with the President about his executive order to raise the minimum wage, I’d like to highlight one thing that I whole-heartedly agree with him on: In our country, some people have more opportunity to flourish than others.
I remember going on a service trip to inner-city Camden, NJ and talking to people who had grown up without enough food, without the support of a loving family or without a home. Teenagers were inundated with violence and illegal activity at school; often they spent their afternoons working a minimum wage job for some extra cash (if they were lucky enough to get a job at all) instead of doing homework. Only the most determined were able to earn enough to get out of the city—let alone make it to college.
In contrast, my parents were able to give me everything I needed to help me succeed in school, pursue extracurricular interests and get into the perfect college. It’s true that I worked in high school and college, but I did it more to build my resume than because I needed money
I don’t want to minimize the fact that the people I met in Camden—and the millions of other people living in poverty across the country—have faced larger barriers to success than I have. Like the President, I want to acknowledge that there are huge obstacles to their success. And like the President, I want to help remove the obstacles that they face in achieving their potential.
But unlike the President, I think that a minimum wage be a huge step backward for those in poverty. Here’s why:
1. The minimum wage cuts job opportunities.
Whether we like it or not, when employers have to pay more to hire workers, they will try to cut jobs to compensate for the rising cost of employees. Last week, Bill Gates explained:
Well, jobs are a great thing. So you have to be a bit careful: If you raise the minimum wage, you’re encouraging labor substitution, and you’re going to go buy machines and automate things—or cause jobs to appear outside of that jurisdiction. And so within certain limits, you know, it does cause job destruction. If you really start pushing it, then you’re just making a huge trade-off.
2. The minimum wage hurts the unexperienced and unskilled.
A high minimum wage personally impacted blogger Joy Pullmann. She notes:
Realistically, the primary benefit young—or any unskilled—folks get from a job is not the pay, but the experience. That’s why it’s well-established that a minimum wage predominantly hurts minorities, the unskilled and young people.
It’s not the privileged, skilled, and established workforce who will be most affected by minimum wage laws. It will be the young, the disadvantaged, and the unskilled—the ones who need a first chance so that they can build their experience to become more marketable. If it’s too expensive to hire them, businesses will be reluctant to give individuals a first chance.
3. The minimum wage drives prices up.
When companies have to pay their workers more, the prices of their products will go up to compensate. This hurts every customer, but it is especially devastating in low-income areas. At best, minimum wage increases will help some people compensate for the increases in prices.
The Alternative to the Minimum Wage
You might be wondering what sort of solution I have in mind. If I don’t like the minimum wage increase, what’s my alternative?
[pullquote] Hard work, innovation, market processes—these are the things that provide hope for tomorrow.[/pullquote]
Unfortunately, I can’t propose an easy solution because I don’t think there is a “quick-fix” policy that can end poverty. I believe that while some policies can help the poor, there are many more that have unintended consequences and actually harm disadvantaged people. It doesn’t matter if we have the best intentions; if we ignore economic realities, we will fail and we will take the most vulnerable down with us.
Here’s another thing I did agree with the President on, however. He said, “We know that the nation that goes all in on innovation today will own the global market tomorrow.”
Hard work, innovation, market processes—these are the things that are not quick fixes but which are proven solutions that provide hope for tomorrow. When governments step out of the way and give us the freedom to flourish, it helps both the richest and the poorest succeed. My colleague Anne Bradley recently cited a 2011 YaleGlobal Report which gives us a reason to be optimistic:
The global poverty rate, which stood at 25 percent in 2005, is ticking downwards at one to two percentage points a year, lifting around 70 million people—the population of Turkey or Thailand—out of destitution annually. Advances in human progress on such a scale are unprecedented, yet remain almost universally unacknowledged.
Based on these findings, Bradley continued:
There is a reason for hope… We have the power and responsibility…to show people how things could be, and to bring about flourishing. Did you know that if you are reading this on a computer, you are one of the richest people ever to have lived in the history of the human race? Kings and queens of the past could not have even dreamed of the things that you and I take for granted each and every day. This is the power of our God-given creativity harnessed through markets.
This growth hasn’t been an easy process, but it has resulted in a steady progression toward more opportunity, freedom and wellbeing for everyone.
Instead of impeding this progress by implementing “quick-fix” policies that hinder the market process and ultimately hurt the poor, let’s pursue the long-term path to human flourishing.