There are more than 10 million job openings in America right now. The worker shortage is contributing to goods shortages, rising prices and supply network problems. One solution often proposed now is to raise the minimum wage, but that wouldn’t work. Instead, policymakers should loosen never-needed regulatory barriers to job creation, rein in excessive occupational licensing, lower trade barriers, relax zoning and land-use regulations, and work to keep inflation in check.
Minimum-wage advocates argue, correctly, that higher pay will persuade more people to join the workforce. But what they may not realize is that a higher minimum wage would not necessarily provide that higher pay. That is because minimum wages have very real tradeoffs.
Workers earn more than wages. They also earn non-wage pay. If the law requires employers to raise wages, they can and do make up the difference by cutting non-wage pay. Workers might have a larger numerical paycheck — and larger tax withholdings — but aren’t necessarily better off as other benefits get axed. The exact mix of tradeoffs would be different for every workplace and employee. But those tradeoffs would still exist — and so would today’s worker shortage.
Restaurant workers, for example, might lose complimentary shift meals. Customers might leave smaller tips if they believe their server is getting a higher hourly wage. A restaurant owner might decide not to hire busboys and instead ask servers to add those duties to their already full plates. Retail workers might have to pay for formerly free parking, have fewer or shorter breaks, or lose employee discounts or tuition assistance.
Some employees might get their hours cut (an obvious tradeoff for which recent Nobel laureate David Card’s famous co-authored study failed to account).
Employees on reduced hours might have to work harder in the hours they do keep.
If employers have to pay higher wages, they will save them for more experienced or productive workers. The high school kid who would have to learn on the job might never be hired in the first place. The single mom with family responsibilities who needs flexible hours would be passed over in favor of someone who can work a regular schedule.
Another reason for all those unfilled jobs is the job-killer that is occupational licensing. Sixty years ago, only 5 percent of jobs required some kind of license or government permit. Today, it’s about 25 percent. Those occupational licenses can cost thousands of dollars for workers to obtain, so many never bother.
Another is restrictions on gig and contract work, such as California’s AB5 law and proposals like it, such as some provisions of the federal PRO Act. Many would-be workers want or need jobs that allow them to work remotely or set their own hours. When regulations block employers from offering those types of non-wage benefits, their “now hiring” signs will stay up.
Regulations under the Dodd-Frank financial law and other financial regulations make it harder for businesses to raise the money to stay afloat and adapt to new realities and worker demands.
Zoning and land-use regulations keep commercial rents artificially high — money that could instead go toward hiring and other investments.
Meanwhile, tariffs and other trade barriers are choking supply networks and creating shortages of everything from cars to computer chips. The problem persists. President Donald Trump raised tariffs steeply for many goods, including steel and aluminum, and so far, the Biden administration has made only modest moves to roll them back. Trade barriers make workers less productive than they could be, which means they get paid less than they could make absent such barriers.
Easing inflation would make workers’ paychecks go further and improve economic stability. To help ensure monetary stability, Congress should reduce deficit spending and respect the Federal Reserve’s political independence.
Minimum-wage advocates have the right goal in mind: more jobs and better pay. But out in the real world, the tradeoffs to minimum wages outweigh the benefits. Reforming never-needed regulations and stopping inflation are better ways to help people get jobs that meet their needs.
(Ryan Young is a senior fellow at the Competitive Enterprise Institute and author of the study “Minimum Wages Have Tradeoffs.” He wrote this for InsideSources.com.)