Pennsylvania’s Minimum Wage Conundrum

  • July 25, 2023
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Pennsylvania has no state minimum wage. Currently, the law of the land is the federal minimum wage that sits at $7.25 per hour. Not having a state minimum wage can be immensely beneficial assuming that the general business climate is amenable to growth. Pennsylvania definitely can’t boast of that yet, but they have taken steps to get there. However, recent actions by the Democrat-controlled State House of Representatives threatens this potential growth.

In the summer of 2022, Pennsylvania governor Tom Wolf signed into law a bill to lower the corporate net income tax (CNIT). I wrote about this with cautious optimism at the time, stating, “Pennsylvania should adamantly commit to keep to the scheduled CNIT decreases and continue lowering its taxes in general.” A year later, the tax decrease was maintained. Eric Montarti and Scott Cross, my friend and colleague, wrote that some within the legislature are proposing an abbreviated CNIT decrease schedule, which (to me) is very promising.

Unfortunately, the Democrat-controlled House passed H.B. 1500, a bill that would raise the minimum wage to fifteen dollars per hour by 2026. This would threaten to undo some of the positive effects of the much-needed tax cut approved last summer. Pennsylvania is clearly not ready to become a business-friendly environment. These volatile policy changes (both good and bad) contribute to institutional uncertainty, diminishing the expectations of entrepreneurs.

There is so much talk about making Pennsylvania more attractive to businesses, but the state seems unwilling to continue going in the direction of less government. I don’t think the minimum wage bill will pass in its current form, but the state Republican Party leadership is open to a more moderate increase. The state Republicans have not exactly been committed to business. In fact, it was Philadelphia’s last Republican governor along with a red legislature that gave the state one of the highest gas taxes in the country.

Philadelphia’s state senator and majority leader, Joe Pittman, states that “There is potential to finding a middle ground for an increase to the minimum wage, but $15 an hour is not reasonable and is not viable. . . . Any possible actions we take must be sensitive to the impact changes would have on small businesses and non-profit organizations.”

It is great that Senator Pittman has concern for the small businesses and nonprofit organizations, but I am unsure if he fully understands the problem of the minimum wage. I think this comes from a mix of good intentions and political strategy. First of all, I have found that Republicans are not opposed to a moderate increase in the minimum wage. This allows them to make concessions on the minimum wage for political gain. Essentially, it’s a win-win situation; give the people a higher wage and also accomplish an ancillary political goal. Second, the Senate Republicans might leverage this to get the House to support legislation the Republicans want to see passed. In this case, they may recognize that the minimum wage is bad, but they have other priorities that would benefit from giving concessions to the Democrats.

However, the increase in the minimum wage is not an issue up for debate. If you want the state to improve, a definite trend toward the market principle must be established. Their actions and compromises nudge the state closer to socialism and only rarely does the size of government retract.

We know that minimum wages are not good policies. They are unethical and economically inefficient.

They violate the sanctity of voluntary agreements between employer and employee, forcing employers to raise wages against their free will and better judgment. As a result, unemployment, decreased compensation, and higher costs of production wreak havoc.

Ultimately, we know a priori that minimum wages either cause unemployment or are ineffective. As Hans-Hermann Hoppe in Economic Science and the Austrian Method states, “Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result.” We know this because it stems from the ultimate starting point of economics—human action—a premise that cannot logically be denied. This insight should be sufficient reason to oppose the minimum wage.

I am not holding my breath for the Pennsylvania Senate to become Austrian. That would require an act of divine intervention. Instead, I hope that the Republicans decide against supporting this particular policy change despite their current openness regarding it.

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