More Flimsy Reasons For a $15 Minimum Wage

This post was written by Jacob Kohlhepp, a research associate at the National Center for Policy Analysis.

A few weeks ago, Paul Krugman gave a gushing review of Hillary Clinton’s vague economic plans in his biweekly New York Times column.  Krugman does not even mention what specifically is good about the Hillary Plan. Yet he somehow latches on to the minimum wage debate, even though Clinton never said anything about a minimum wage.  She only mentioned it after a reporter asked her directly, and her answer was actually skeptical of a national minimum wage hike to $15.

But Krugman trudges on, insisting that economists are certain that minimum wage hikes in the United States do not hurt employment.  Like many other minimum wage proponents, he cites an old, controversial study as proof (the Card-Krueger study which has questionable methodology and is contradicted by a number of other studies).  Yet, he fails to state the minimum wage hike examined in the study was modest at best.  Nothing like the $15 behemoth progressives are trying for. And he fails to report inflation was many times higher during that hike than it is now. He effectively forgets the context and leaves out all of the contrary evidence.

But how he finishes his tirade really takes the cake. He cites the age-old Costco-Walmart comparison as his trump card. Degrading what he calls the “low-morale, high-turnover model” of Walmart and praising the “higher pay and better benefits” model of Costco, Krugman preaches that government meddling can help “encourage” firms to be more like Costco and less like Walmart.

However, a report that will be released later this year by the NCPA reveals areas that contain Costcos are not your average neighborhoods. In fact, Costcos are disproportionally located in higher income urban areas where rich customers can afford the steep membership fees and the more lavish customer service.

Our analysis reviews Costco and Walmart locations across Texas and Florida, finding that even controlling for population Costcos are all located in the upper income areas. Walmarts, for their part, seem to be located everywhere except the very poorest or the very richest neighborhoods.

So when living wage advocates say we should “encourage” firms to be more like Costco, we have to ask: do they want to eliminate the low price options that Walmart offers to those who cannot afford Costco’s large quantities and membership fee? Because as long as lower and middle income households exist, there will be a need for a low price retailer.

We hope that readers stay tuned for our study. Because economic reality is a lot different than living wage fantasy.







Comments (3)

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  1. Josh says:

    This quote of Hilary from a MotherJones article last week.

    “I think part of the reason that the Congress and very strong Democratic supporters of increasing the minimum wage are trying to debate and determine what’s the national floor is because there are different economic environments,” Clinton said in New Hampshire last week. “And what you can do in L.A. or in New York may not work in other places.”

  2. Devon Herrick says:

    The Walmart/Costco comparison reminds me of something that many proponents of minimum wage hikes don’t understand. If a business has to pay higher wages, they will be able to attract better (i.e. more experienced) workers who would not have worked for less. Over time these more experienced workers will crowd out less productive workers.

    Basically, if politicians decide the minimum wage should be $15, businesses will only hire people who would have earned $15 absent the law. Most of those who earned less will find their job prospects diminish. Without that foot in the door, many will become a permanent underclass.

    Every business model has different labor strategies. Some firms prefer to hire more workers and have less automation. Others hire more highly skilled workers and have them operate labor-saving machinery. Some labor intensive firms have made it their business model to hire workers with less experience and lower skill levels and supervise them more closely. Yet, a similar firm may prefer to hire fewer workers with more experience and pay them more. That is where the Walmart/Costco comparison comes in. Costco may not be willing to hire the average new Walmart recruit until they have more experience. By that time, Walmart has trained them and raised their salary.

    A recent analysis from Seattle found that many of those who were supposed to benefit from higher wages cut back their hours because their higher pay displaced welfare benefits. Why work 40 hours a week when you can enjoy the same standard of living working 30?

  3. Brian Williams. says:

    If a $15/hour minimum wage is a good idea, then why stop at $15? Why not make everyone rich with a $100,000 per year minimum salary?

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