Minimum Wage Reality Check For Obama

Democrats, especially President Obama, continue to promote the idea, first highlighted in the State of the Union address, of a significant increase in the federal minimum wage. The President clearly sees the issue of a hike from $7.25 to $10.10 as one with which he can put Republicans—who have held up such legislation in the House– on the defensive for the fall campaign. Left-leaning mayors from across the country, from Bill De Blasio in New York to Ed Murray in Seattle, are on the same page as the White House. They have pushed for local minimum, or “living wage” laws, that would raise required entry level pay as high as $15 an hour.

These self-styled progressives might be surprised to learn that, even if the idea polls well, it is actually not popular with a group that’s usually a reliable part of the Democratic coalition: non-profit human services providers and advocacy groups. A revealing piece of reporting by Suzanne Perry in the Chronicle of Philanthropy makes clear that the leadership of such groups understood that what the overwhelming majority of economists, as well as the Congressional Budget Office, say is true: a higher minimum wage will lead to job losses among those the law would ostensibly help—low-income workers.

The Chronicle, in an article surveying nonprofits across the country, finds widespread concern about a higher minimum wage. Kathy Potter of the Minnesota Council of Nonprofits, gets to the heart of the matter when, recalling her response when she learned that her own group was backing such an increase at the state level, said, “Are you kidding me?” Or, as Sylvia Furstenberg, executive director of a Seattle-area’s Arc of King County—which employs those with intellectual and developmental disabilities—put it more expansively to the Chronicle, “As a nonprofit leader who is concerned with social justice, I’ve lost many nights of sleep considering this issue. How can we build a more just and equitable community without bankrupting the organizations that help our most vulnerable?” The Chronicle found similar sentiments from national advocacy groups, such as the National Human Services Assembly, whose chief executive, Irv Katz, observes pointedly that an increase of a magnitude proposed by the White house would “almost necessarily result in reduced levels of service.” Such are the specifics behind CBO’s estimate of 500,000 lost jobs.

Human services groups, scrambling for a policy lifeline, are pushing for higher “reimbursement” rates. That would mean increased payments for services from governments at all levels—a reflection of the extent to which the once-independent sector has become part of what is described (by Jody Freeman and Martha Minnow) as “ government by contract”. But government is under its own general budget pressure, of course—and the likelihood of such increases is limited. What’s more, such a potential deus ex machina for non-profits overlooks the problem faced by the private employers who provide most of the jobs for low-income workers. They can’t turn simply the tap and increase their revenues. Instead, they’ll have to pull up the ladder of economic opportunity for those who most need a start in the labor force—and leave them to struggle in the informal sector, or, worse, turn to criminal activity. At which point, of course, they’d need help from human services groups—who’d have fewer staff to provide it.

Here’s a case in which the White House, Nancy Pelosi and progressives generally might want to do a reality check with one of their core constituencies.Among those with whom the President might want to check in are the small business owners of a nation he has long admired: South Africa. There, as I’ve written for City Journal, small employers are required to pay high minimum wages set by national bargaining councils, where government and labor unions negotiate—without considering the small businessman or entrepreneur. The result has been staggering unemployment —38 percent overall, and 49.8 percent among youth—significantly higher than the 13 percent rate when apartheid ended. Similar damage has been wreaked by the unrealistic labor laws of France, Spain and Greece. It’s a path the U.S. ought not to choose. Surprisingly, non-profits, in this case, are providing a warning.

This piece originally appeared in Forbes

This piece originally appeared in Forbes