Raising minimum wage enriches landlords in low-supply housing markets
Competition for limited housing stock will prompt low-income workers to allocate any pay raises to securing better housing, enriching landlords.
Advocates for raising the minimum wage have lofty aspiration. Many working-class Americans barely make ends meet earning minimum wage — and some don’t make ends meet. Advocates of raising the minimum wage believe forcing employers to pay more will put more spending money in the pockets of low-wage workers and improve their quality of life.
Many advocates for eliminating the minimum wage are industry shills paid to peddle lies so employers can exploit workers without paying them a livable wage. Assholes like that disgust me. However, many advocates for freezing the minimum wage or eliminating it completely also believe they help lower-income Americans. They argue that a higher minimum wage discourages employment, and more workers at lower wages is better than higher wages and higher unemployment.
So who is right? Sorry, I don’t have that answer, but as long as the minimum wage is not livable, I would probably side with the advocates for raising it.
What’s not often discussed when considering the minimum wage is where the money goes once minimum-wage workers get paid more. In most areas of the country, these workers will spend the money on goods and services, boost the economy, and raise their quality of life. Of course, there is no free lunch, and the people who don’t benefit are employers who must pay the higher wages and the just-above minimum-wage workers who don’t get a raise. Raising the minimum wage is inflationary by nature. Those workers who don’t get raises while everyone around them does endure a lower quality of life because they face higher prices on good and services as they compete with the wage earners who got a boost.
In labor markets where housing availability is limited, things are a little different. Los Angeles is about to raise its minimum wage, but this won’t be a boon to workers. Higher minimum wages in markets where housing supply is constrained will mostly go toward paying higher rent, a huge bonus to local landlords.
Why is that? Well, when housing is limited, renters compete fiercely for available supply. If you suddenly put $200 more in someone’s monthly paycheck, someone who lives in a substandard crap-hole, what do you think they will do with that money? Many of these people will put most of this money toward rent on what they hope is a nicer place. Of course, the cumulative effect is a wash as most renters will need to pay more just to stay in the place they already have because of all the people below them also trying to move up.
In the end, most of the extra money provided to a minimum wage worker in a supply-constrained housing market will end up in the hands of their landlord.
Does that mean we shouldn’t raise the minimum wage? No. But raising the minimum wage without removing the barriers to providing more housing supply won’t accomplish what advocates hope it will.
Ever since Seattle enacted a measure to raise its minimum wage to a nation-leading $15 an hour, conservatives have been sharpening their pencils to show the raise is a job-killer.
Mike Patton of Forbes broke out of the box early, with a piece on Sept. 28 asserting that “thus far the data doesn’t bode well for supporters of this law.” His evidence was an apparent spike in Seattle’s unemployment rate after April 1, when the first increase to $11 from the Washington state minimum of $9.47 was implemented.
“The unemployment rate will likely trend higher for several years as businesses seek ways to mitigate the negative financial consequences of this law,” Patton wrote.
The issue isn’t trivial. Dozens of municipalities are contemplating increases in their minimum wage or begun implementing long-term changes. Los Angeles will raise its minimum July 1 from the state-mandated $10 to $10.50, with the goal of $15 in 2020.
But the problem with using Seattle as an early warning signal for minimum wage increases is that, as yet, there’s almost no good information. Patton, for instance, used a few months of non-seasonally adjusted data, but he may not have noticed that Seattle employment falls every April before recovering in subsequent months. Adjusting for seasonal variation, as the Bureau of Labor Statistics does routinely, the spike in the unemployment rate disappeared.
“The jury is still out on the $15 minimum wage,” he said, “and it will take years to assess its impact. I’m simply pointing to some possible evidence in employment trends that might suggest that there is early evidence of some effects.”
Yet it’s not clear that there really is early evidence of “some effects,” as opposed to flawed statistics that can be massaged to show it. Critics of the Seattle minimum wage are, at best, jumping the gun.
Shills for employers who rely heavily on minimum-wage workers will work overtime to spin data in opposition to raising the minimum wage. These same powerful employers will also buy off key politicians in hopes of blocking any minimum wage hikes. Thought despicable, this behavior is understandable.
Local minimum wages are necessary to ensure people living in a local economy using the local currency can adequately cover the basic cost of living. How basic depends on local standards, but nobody should be compelled to work excessively long hours for less money than what’s required to provide food and shelter.
Global Wage Arbitrage
Three years ago I asked What is the minimum level of housing quality people are entitled to? In other parts of the world, what we consider poverty would be luxury by their standards. So while raising minimum wages here may help some working-class poor out of poverty, it probably will push some employment overseas, and some of that money will go toward improving housing conditions in those locations.
Have you ever reviewed the services offered on Fiverr.com? I have. All the animated graphics on this site were produced by a graphic artist in Romania I found on Fiverr. I contract with two firms for SEO work, one in India, and the other in Bangladesh. Rather than paying $50 per hour for US labor, I pay $5 per hour (or less) for labor on the other side of the world. Am I exploiting cheap labor, or am I providing economic opportunity to someone who otherwise wouldn’t have it?
These arrangements will become more common as global wage arbitrage spreads around the world. Service exchanges like Fiverr will lift the standard of living in many areas as money flows to where quality work is the least expensive. The guy in Bangladesh who’s working for me is using that money to buy goods and services in Bangladesh, boosting the local economy there. Who knows, perhaps it enables him to move out of a shanty and into a nicer property. Perhaps this demand facilitates new construction and helps elevate more people out of poverty.
Those who are left behind
Advocates for raising minimum wages reject the argument that raising the minimum wage reduces employment. As my description of wage arbitrage shows, higher wages do serve to reduce local employment, probably not as much as opponents say, but certainly more than advocates acknowledge. What happens to these people? What happens to the worker who can’t find a job because the minimum wage is too high?
Some go on government assistance, and some take odd jobs, but many simply move somewhere else where they can find work at a livable wage. (See: It costs too much to live in California)