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    Monday, May 13, 2024

    Proceed cautiously on big minimum wage boost

    Connecticut should not lurch ahead and join the movement for a $15-an-hour minimum wage. While it is true that level of pay is necessary to generate a “living wage” for a full-time worker, it is fanciful thinking that the market can be so easily manipulated. If the solution to helping struggling households were that easy, why not set the minimum wage at $25 an hour?

    The reality is that a rush to dramatically boost the minimum wage could potentially hurt the very people its proponents want to help, poor families and unskilled workers.

    At that imposed pay rate, more employers would have the incentive to invest in automated systems to displace workers, accelerating a trend that is already underway.

    It would also raise employer expectations. At $15 an hour, young college students seeking part-time work or experienced older workers seeking some part-time employment to stretch their retirement assets could prove far more attractive to employers than unskilled laborers trying to escape poverty.

    This is to say nothing of the hit businesses in Connecticut would take. It is already an expensive state in which to do business. When higher labor costs are mandated, the trade-off can be the hiring of fewer people. It can also result in the hiring of more part-time staff, to avoid the cost of benefits associated with full-time employment.

    None of this is meant to suggest that having a minimum wage is a bad idea. The minimum wage plays an important economic role. It provides a necessary foundation. Without it, employers, particularly in difficult economic times, could exploit workers by paying next to nothing. Set it too low, and social safety-net programs become more attractive than paying jobs. Businesses focused on the bottom line may myopically concentrate on keeping salaries as low as possible. The minimum wage acts as a counterbalance, and businesses can benefit if that leads to less turnover and higher production.

    The current $7.25 an hour federal rate is embarrassingly stingy for a wealthy nation.

    Connecticut took reasonable steps in phasing in a $10.10 state minimum wage. It currently stands at $9.15, will increase to $9.60 in 2016 and to $10.10 the following year. Economic studies, and there have been many, show that modest growth in the minimum wage is largely harmless when it comes to job retention.

    It is unclear, however, what economic effects would result from a sudden and dramatic boost in the minimum.

    When the Congressional Budget Office looked at a federal $10.10 minimum wage, as has been proposed by President Obama, it predicted an interesting result — the poor would not benefit most. More of the income from the higher wages would actually go to families doing quite well, because those are secondary jobs in many households.

    “The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold,” the CBO estimates.

    One could expect a $15 an hour minimum to exacerbate this phenomenon.

    There will soon be some real-life data to evaluate. New York state is considering a phased-in $15 minimum for fast-food workers. Los Angeles, Seattle, San Francisco, Oakland and Berkeley have approved city ordinances to phase in a $15 an hour standard.

    It is an interesting economic and social experiment. Connecticut should observe before considering acting.

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