Vance, Like Biden, Flunks Econ 101: Backs Hiking Federal Minimum Wage

Donald Trump's vice presidential running mate, Republican Senator J.D. Vance (OH), is a very smart and admirable man, but when it comes to basic economics-economics vital to liberty-he apparently is lacking. Vance supports price controls, specifically hiking the federal minimum wage to $11 an hour. This will raise costs for businesses and consumers and (as most studies still find) will kill jobs, especially for younger workers.

Vance is not alone in his devotion to government manipulating prices, of course. President Joe Biden and Vice President Kamala Harris also back a 5 percent cap on rent increases for corporate landlords nationwide. My colleague Ryan Bourne has explained why that is bad policy and documented how top economists are cold on the plan. Yet the prevalence of price controls is growing (Bourne calls it The War on Prices), and rising minimum wage rates at the state and local level exemplify this trend.

Vance would bring the policy of minimum wage hikes to DC. The current federal minimum wage is $7.25 an hour. In the fall of 2023, however, Vance co-sponsored a Republican bill, "The Higher Wages for American Workers Act." This legislation "gradually raises the federal minimum wage to $11 by 2028, and then indexes it to inflation every two years," reads a fact sheet on the bill. The legislation also mandates E-Verify to "ensure rising wages go to legally authorized workers."

The new bill is currently sitting in the Senate Judiciary Committee.

Vance spoke about the minimum wage in a June 24 interview with Ross Douthat of the New York Times. Explaining his populist economics, Vance said, "It's a classic formulation: You raise the minimum wage to $20 an hour, and you will sometimes hear libertarians say this is a bad thing. 'Well, isn't McDonald's just going to replace some of the workers with kiosks?' That's a good thing, because then the workers who are still there are going to make higher wages; the kiosks will perform a useful function; and that's the kind of rising tide that actually lifts all boats."

"What is not good is you replace the McDonald's worker from Middletown, Ohio, who makes $17 an hour with an immigrant who makes $15 an hour," added Vance. "And that is, I think, the main thrust of elite liberalism, whether people acknowledge it or not."

As Eric Boehm at Reason magazine noted, "Vance is trying to play a clever game here. He's arguing that job losses (or other negative economic consequences) due to well-intentioned governmental interventions should be ignored, and the focus should be on how workers benefit from those interventions. If you're someone who favors greater governmental intervention in the economy, as Vance does, this is exactly the framework you'd like to work within."

But, as Bourne has written, there is all the difference in the world between genuine productivity-enhancing innovation changing job opportunities and the government making it artificially expensive to employ people to do a job:

It's true that free markets incentivize firms to invest in machinery that substitutes for labor if it boosts profits. This type of capital investment, when genuinely economic, can indeed improve firm productivity and raise wages for the remaining workers.

Yet artificially raising the price of labor through a government-mandated wage floor is different. It is a price control, incentivizing otherwise uneconomic investments that firms would spurn. The price control is, in effect, lying about the state of factor availability in the market, pushing businesses away from the optimal capital-labor mix based on the actual relative scarcities of those production factors.

Yes, the workers who remain employed might again see higher pay when firms purchase kiosks, though businesses may shift towards hiring higher-skilled labor to work alongside the machines, meaning the particular workers employed may change. What's more certain is that fewer low-skilled workers would find jobs, and by raising the marginal cost of production, these uneconomic investments would reduce the overall scale of the firm's operations. Hardly a route to 'lifting all boats.'

Current day California is a good example of some of these adjustments. In April, California raised its minimum wage for most fast-food workers to $20 per hour. Since then thousands of workers have lost their jobs and menu prices have risen. Round Table Pizza and Pizza Hut, for example, announced they were laying off about 1,300 delivery drivers. McDonald's, Chipotle, and Jack in the Box said they planned "to raise menu prices to compensate for the required wage increase," reported NBC 7 San Diego.

This price control on wages has eradicated entry-level positions that can give vital experience to young and lower-skilled workers and provide protection against poverty. Driver Michael Ojeda, 29 years old, said, "Pizza Hut was my career for nearly a decade and with little to no notice it was taken away."

Yes, some fast-food workers now get $20 an hour. But what is not seen is that about 9,500 fast-food workers lost their jobs, reported the Hoover Institution. That is a direct consequence of government intervention.

If the investment in kiosks Vance celebrates were so economically wise, businesses would have made them already. The fact they have not shows that minimum-wage-induced investments are inefficient. Indeed, as Bourne writes:

Suppose the government introduced a minimum sale price of $25,000 for used cars. Many cars worth $10,000 or $5,000 would simply not get sold at all. What might happen, however, is that some used car owners would face incentives to "invest" in upgrading their vehicles so that they justify the new $25,000 price.

Would anyone claim such investments were worthy because it resulted in some better cars? Would we celebrate that investment as a route to prosperity?

The answer is clearly "no." Yet that is the reality Vance seeks to deny.

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