Getting a job requires experience; getting experience requires a job. This is one reason the trap of poverty can be so difficult to escape. But what is the root of this trap? Solutions exist, but they are too often blocked by misguided policies such as the well-intentioned minimum wage. By eliminating the opportunity to work, the minimum wage also eliminates the opportunity to learn.
The hourly minimum wage has risen to $15 in Seattle, and is scheduled to rise to $15 in California by 2023 and New York City by 2019. Fight for Fifteen, a union-funded advocacy group, wants to raise the federal minimum wage to $15. The initiative is championed by popular politicians like Senator Bernie Sanders, who said “The current federal minimum wage of $7.25 an hour is a starvation wage and must be raised to a living wage.”
But sadly, a universal living wage cannot be achieved by policy mandate. A higher minimum wage would eliminate many $7.25 jobs, leaving people with a true starvation wage of $0. Worse, it would eliminate the opportunity for many job seekers to learn and improve their wage.
Almost nobody comes into the world productive. The prevailing wage for toddlers is negative. But as they grow, people acquire knowledge and skills that better allow them to create value for others in a market. As the great economist Alfred Marshall said, “The most valuable of all capital is that invested in human beings.” Economists refer to these acquisitions as human capital, which can include everything from neurosurgical skills to basic knowledge of professional etiquette.
Children begin with skills such as walking and talking. Later, they learn the value of “please,” “thank you,” and other subtle forms of etiquette. As they find their identities, they may further cultivate skills that interest them, such as how to dress, how to cook, or how to use a computer.
In school, learning takes on a more obvious and deliberate form. Students take in a plethora of facts, such as the role of the mitochondria in the cell and the date the Magna Carta was signed. Perhaps knowledge is intrinsically valuable, but the majority of these facts will be irrelevant to the student’s future market contributions. The skills that can help most every student in their eventual work and careers are often subtle ones like responsibility, discipline, and cooperation.
But school is hardly the best or only place to develop these skills.
It is a truism that the best way to learn is to do, which explains employers’ preference for applicants with previous job experience. A first job can provide a large boost to someone’s human capital. This is why working in a low-wage job might be worthwhile for someone who has no better opportunities. A low-wage job is a step to a higher-wage job.
But what if that step is pulled away? Economists are in general agreement that minimum wage laws remove opportunities for low-wage work. Employers want to pay employees according to their human capital, or how much market value they can contribute. Employers who try to pay more than that suffer losses and go out of business. Yes, the minimum wage results in higher wages and lower job competition for some, but it eliminates employment opportunity for those who most need it. Is this tradeoff worthwhile?
In addressing this question, it is helpful to recognize that an opportunity to work is an opportunity to learn. Hence, the question of the minimum wage is about education. It follows that an opportunity to work at a low wage is an opportunity to learn at a low wage. The minimum wage eliminates both.
For job-seekers disenfranchised by the minimum wage in their quest for opportunities to learn, school is the obvious substitute. Higher education, however, is rife with equally pernicious policies. Tuition costs are rising with federal aid, and the complexity of aid programs deters Americans struggling to snag a rung on the economic ladder. Just like the minimum wage, apparently well-intentioned financial aid programs fail to give poor Americans a leg up. Even as aid programs have expanded tenfold since 1970, the proportion of recent college graduates from the income distribution’s bottom quartile has fallen. The unemployment rate for those with less than a high school diploma is almost twice that of all workers. These are people precluded from both work and school by government policies purporting to help them.
Social economic growth and individual economic advancement are both achieved through learning. People can invest in human capital by enrolling in school or by accepting a low-wage job. Not only do they benefit from the investment, but so does everyone they go on to serve with their acquired skills.
An opportunity to learn is an opportunity to do anything. Allowing people to invest in themselves yields endless possibility. This is what policymakers who support the minimum wage oppose. Many improvements in quality of life have come from the human drive to learn and improve. That is why a higher minimum wage would be counterproductive.
Dillon Tauzin is a contributor to Economics21.
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