Scott Shepard Let towns decide what minimum wage works best
Minimum-wage increases often hurt most the very people they’re ostensibly designed to help. Allowing municipalities to set their own minimum wages, up to a slowly increasing statewide cap, can help to avoid much of this harm.
Governor Lamont and the new legislature are just beginning to tackle the prospect of governing. Among their enumerated top priorities: the $15 per hour minimum wage.
Although the intent of such a policy may be laudable, the laws of economics are unforgiving when it comes to significant minimum-wage increases. Unintended consequences range from their potentially bankrupting impact on marginally profitable or low-skilled labor-intensive businesses to the job- and hour-losses and work-load increases that fall on low-wage workers in the wake of the increase.
At base is a fundamental truth: When anything (here, labor) becomes more expensive, purchasers (that is, job creators) respond by simply buying less of it. In a state like Connecticut — which has struggled to recover the jobs lost since the Great Recession — it means any policy that could result in lost jobs should be adopted with enormous caution.
There are ways to mitigate the harshest effects of a minimum-wage increase that are worth considering. These measures may end up saving jobs for those most marginally attached to the labor force.
The traditional approach has been to phase in the rise over a period of years, so that businesses can make offsetting productivity improvements to compensate for the mandatory input-cost increase, thereby allowing them to remain solvent.
But there is a more creative and novel way to reduce the unintended consequences of a minimum wage increase: Adopt local-option minimum-wage authorization — that is, trust municipalities with the authority to raise their minimum wage up to a specified state maximum (the “local option”).
The local option recognizes that not even a small state like Connecticut is so uniform in its composition that all portions of the state can reasonably support the same minimum wage, especially if it is relatively high. The cost of living in Tolland is lower than in Westport. The businesses in Greenwich can, on average, afford to pay a higher minimum wage than those in Washington Depot. City wages are generally higher than those in rural areas.
The people who have the best grasp on how much a municipality’s businesses can afford are the people in that municipality. Let their leaders decide — based on their own local knowledge and their intense responsiveness to local voters — what their municipality’s minimum wage should be, within a range between the current minimum wage and a slowly rising statewide cap.
Meanwhile, the local option would allow workers and businesses effectively to “vote with their feet,” without the dislocation and disruption attending an interstate move. If it turns out that the higher minimum wage is right for a town that chooses to raise to the cap, then that town will thrive, attracting better workers and resulting in better businesses. Other municipalities will profit by their example and follow suit.
If, instead, a lower minimum is right for that area, business will be attracted to the municipalities that kept the wage steady. Those towns will then reap the reward with more successful businesses, more tax revenues, and fewer unemployed residents.
And where localities conclude that their initial choices have been flawed, their leaders will be able to reverse course relatively quickly and easily, without undermining a whole region’s economy for years to come.
When it comes to the minimum wage, surely everyone can agree that state policy should benefit workers — not harm them. The primary beneficiaries of any reform intended to suit the minimum wage to local economic realities are, indisputably, the least-skilled and lowest-paid workers. It’s no benefit if wage-hike advocates push for policies that result in their being thrown out of work (or saddled with reduced hours and increased responsibilities).
A local-option minimum wage up to a statewide cap is a reform that can give workers a pay increase while keeping more Connecticut residents on the job. And that’s a public policy that works for everyone.
Scott Shepard is the policy director of the Yankee Institute for Public Policy, Connecticut’s free-market think tank.