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Mayor Poe should leave economics to the experts

File photo from 2020 State of the City speech

OPINION

BY LEN CABRERA

For someone who claims to listen to “experts,” Gainesville Mayor Lauren Poe likes to make proclamations on topics he is not qualified to talk about. Those topics include his recent Tweet claiming that $15/hr is “not controversial.”

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As someone who has earned a PhD in economics, I do qualify as an expert on topics like the minimum wage. I would agree that paying people $15/hr is not controversial if employers were voluntarily paying that amount. That’s not what Mayor Poe meant. He wants to force businesses to pay people more.

Pushing for a higher minimum wage is probably not controversial at the “non-partisan” United States Communist Mayors meetings Mayor Poe likes to attend (you may remember that he went to Hawaii on your dime in 2019). In fact, real economists agree that it’s not controversial to be against a minimum wage. Mayor Poe should know that, since he supposedly teaches economics to high school students, even though he doesn’t have a degree in economics.

A minimum wage is what economists call a price floor. Rather than allowing the free market (i.e., individual decisions) to determine the price, the government sets a lower limit on price. In this case, it’s the price of labor, but the result is the same as any other price floor: supply of the good or service will exceed demand. In the labor market, that means there will be more people willing to work than employers are willing to hire (i.e., more unemployment).

That’s not just theory. In 2019, CNBC reported on a survey of 173 restaurants affected by recent minimum wage increases in six states; it showed 64% of the restaurants reduced employee hours and 43% eliminated jobs.

Minimum wage proponents often ignore the resulting unemployment and claim that workers (at least those who retain their jobs) will be much better off, but this ignores the uncontroversial economic result of increasing the price of inputs (labor is an input): higher output prices.

In other words, the minimum wage will cause inflation (an increase in overall prices), which effectively negates the higher wages and hurts all consumers whose wages do not increase commensurately.

Further, the unemployment created by the minimum wage actually hurts those the proponents claim to be helping. By artificially raising the price of labor, the minimum wage creates a barrier to low-skilled workers from ever entering the workforce to develop their skills. Businesses hire employees to produce goods and services, not simply to give them jobs.

In order to stay in business, companies need to make the best of the resources used to produce their product or service. This includes their use of labor. Well-run businesses pay workers the value of their marginal product. (This is a non-controversial result of a profit maximization or cost minimization problem that is commonly solved in a real undergraduate microeconomics course.)

Workers get paid more as their productivity rises (or the value of the output increases). Increasing the minimum wage will force employers to look for more productive employees and/or replace labor with capital (i.e., more automation, like those self-service kiosks at McDonald’s).

The fact that most businesses already pay above the minimum wage demonstrates that there is no need for the government to set a minimum wage. Wages rise naturally because of inflation, supply/demand of labor, and productivity. The best way to increase wages is to have better-skilled, better-educated workers, not by imposing a government mandate. Of course, when the government assumes the responsibility for education and can’t produce graduates with the skills or work ethic to warrant a $15/hr wage, it’s easier for government to just mandate the wage than to fix its flawed education system.

Aside from the economic arguments against a minimum wage, there are actual controversial issues that result from increasing the minimum pay. When Governor DeSantis raised the minimum salary for teachers, the unions were against it because it didn’t raise pay for ALL teachers. In 2019, WUSF reported that Mike Gandolfo, the president of the Pinellas Classroom Teachers Association, said, “You know, they view it as a slap in the face to them,” referring to the teachers who would not get salary increases. As with the teachers, raising the minimum wage to $15/hr will create resentment among those who worked their way up to actually earn $15/hr. To fix that, they will also need their wages increased. This cascades all the way up to the top, increasing costs to businesses (and government) that are far more than the increase at the bottom of the wage scale.

If Mayor Poe actually listened to economists, he would not claim that $15/hr is not controversial. But there is no telling what “not controversial” means in Mayor Poe’s head. I imagine it means reciting trite, Marxist slogans while not being challenged on the actual consequences of his favored policies. He only listens to “experts” when they say what he wants to hear.

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