Judging from the reaction to Larry Elder’s comment that the appropriate minimum wage is zero, one would think he had suggested harvesting California’s iconic giant sequoias or closing the Golden Gate Bridge. But what the radio talk show host and gubernatorial recall candidate said should not have stirred controversy. The idea makes perfect sense.
During an interview with the editorial boards from McClatchy’s California newspapers last week, Elder brought up the undue burden that minimum wage laws place on businesses.
“For somebody who’s never run a business to tell business people … ‘I’m going to jack up your price of labor, and you’re going to deal with it,’ to me, it’s offensive,” said Elder.
“The ideal minimum wage,” he declared, “is $0.00.”
The statutory minimum, though, is quite different. California companies with 26 or more employees must pay them at least $14 an hour, while those with fewer than 26 must pay at least $13 an hour. By 2023, all businesses in the state will have to pay a $15 an hour minimum wage.
Of course Elder doesn’t mean employees should work for zero compensation. The point is, government has no business setting a wage floor. It’s scarcely a different position than the one held by the New York Times editorial board in 1987, when it argued “there’s a virtual consensus among economists that the minimum wage is an idea whose time has passed.”
“Raising the minimum wage by a substantial amount would price working poor people out of the job market,” the board continues. Pricing the “legal minimum price of labor above the productivity of the least-skilled workers” would result in fewer workers being hired.
The headline for that editorial: “The Right Minimum Wage: $0.00.”
Not so many years back, a couple of economists, one from Miami University, the other from Trinity University, evaluated “the Golden State’s 30-Year minimum wage experiment.” Looking at the era from 1994 to 2016, they found “that past minimum wage increases in California have caused a measurable decrease in employment among affected employees.”
The data led them to conclude “that a 10% increase in the minimum wage would cause a nearly 5% reduction in employment in an industry where one-half of workers earn wages close to the minimum.” At the same time, “in an industry with an average share of lower-wage workers, their findings imply that each 10% increase in California’s minimum wage has reduced employment for affected employees by 2%.”
Another way to look at a $0.00 minimum wage is that it is exactly the amount earned by workers who don’t have jobs because government-set wage floors exclude them from the workforce. More than 50 years ago, left-wing economist Paul Samuelson made this point when he asked “what good does it do” when a young person knows an employer has to pay him more than the market rate for wages “if the fact that he must be paid that amount is what keeps him from getting a job?”
University of Michigan economics and finance professor Mark Perry recently highlighted the findings of another fresh academic paper. As it turns out, “every $1 an hour increase in government-mandated minimum wages” causes:
- a nearly 21% reduction in the average number of hours each employee worked in a week
- a total wage reduction of 13.6% for the average minimum wage worker
- almost a quarter of employees working more than 20 hours per week to have their hours cut, leaving them ineligible for retirement benefits
- a 14.9% reduction in the percentage of workers putting in more than 30 hours per week, leaving them ineligible for health care benefits
- an average total compensation net loss of at least 11.6%
A zero minimum wage isn’t politically feasible in California or anywhere else in the country in 2021 (or 2022, or 2023, and on and on). But, as academic economist and Hoover Institute fellow Russ Roberts has pointed out, discussing it, and other politically difficult policies, helps “people understand how the world works using the tools of economics.”
“I’m not trying to convince politicians to see the error of their ways – that’s a waste of time,” says Roberts. Instead, he’s trying to convince the average person “that economics is a powerful illuminator of what’s really going on when the minimum wage goes up.”
While “there’s something quixotic about being against the minimum wage in a world where most people think it’s a good idea,” he adds, “I still say hand me that lance.”
Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.