By Zilvinas Silenas
Alexandria Ocasio-Cortez recently took to Twitter to once again call for raising the federal minimum wage. She argued that $15 an hour, if anything, is a “deep compromise,” especially in light of the fact that, “McD’s workers in Denmark are paid $22/hr + 6 wks paid vacation.”
This argument doesn’t hold up. Here’s the key consideration: A sharp increase in the minimum wage will almost always cause unemployment, but it will cause more unemployment the higher it is relative to market wages.
So, Ocasio-Cortez’s US-Denmark comparison is misleading in multiple ways.
First of all, Denmark does not have a national minimum wage.
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Instead, specific industries have different wage rules set through collective bargaining with trade unions. On average Danish fast food workers do earn more than their American counterparts—approximately $27 vs $11. But Denmark is a bad example to use to push for an across-the-board hike in the national minimum wage, because Denmark does not have one.
In European Union countries that actually have a national minimum wage, it is lower than $15 an hour. For example, France’s and Germany’s minimum wages are equivalent to $11.46 and $12.42 an hour respectively.
Also, the US is much bigger and more economically diverse than any single European country. Ocasio-Cortez’s proposed $15 federal minimum wage would be much more comparable to an EU-wide minimum wage, which doesn’t exist—and for good reason.
France’s minimum monthly wage is €1554, while Poland’s is €614. If France’s minimum wage (or higher) were imposed on Poland by EU mandate, it would inflict much more unemployment in Poland (where average wages are lower) than in France.
Similar regional differences exist in the US and should not be ignored.
Bumping the average New York fast food worker to $15 an hour from the current prevailing wage of $12.68 would cause some unemployment. But it would wreak much more havoc in Mississippi, where the average fast food worker only makes $8.81 an hour.
A minimum wage almost double the average would throw many more people out of work.
Similarly, due to differences in the cost of living, $15 is a mediocre pay rate in wealthy areas and a good one in poorer ones. In an extreme example, $15 in DC is equivalent to a $68 minimum wage in Puerto Rico. It’s also easier to increase the price of burgers to cover the wage increase in New York, where your average resident makes $80K a year, than in Mississippi, where average annual earnings are $44K and where the average (not minimum) wage is $15 an hour.
Any way you look at it, businesses in New York can absorb $15 an hour much easier than businesses in Mississippi.
Finally, large and rapid increases in minimum wages are especially harmful to those with low skills or low qualifications and newcomers to the job market. EU countries with high minimum wages recognize this, and many instituted a “workaround”—a lower minimum wage for young people. For example, the minimum wage for 16-year-olds in the Netherlands is three times lower than for adults. So your typical Dutch teen working a summer job could be flipping burgers for $4 per hour, not $15.
Should politicians pursue policies that allow people to earn more?
Absolutely. However, the $15 an hour minimum wage is not that type of policy. It will ultimately increase unemployment among vulnerable groups and drive businesses to bankruptcy, especially in poorer states and economically disadvantaged areas.