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Minimum Wage, Maximum Waste

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Minimum Wage, Maximum Waste

San Francisco’s mandated $15-an-hour law is exacerbating homelessness. October 15, 2018
Economy, finance, and budgets

As a small-business owner in New York City, I could hire entry-level workers at about $12 per hour; their labor, in turn, earned me between $13 and $15 per hour. It was an excellent arrangement. I provided a service for my customers and jobs for low-skilled workers. Working for me, they developed their skills, then moved on to better-paying opportunities, either with me or with other employers. I didn’t make a lot of money doing this, but I made enough, while developing a talent pool for more complex projects. 

I can’t replicate this model as a businessman in San Francisco, where I now live. The cost of labor is too high. This may seem counterintuitive, because many able-bodied people are living on the streets, out of work. In fact, nearly 1 percent of San Francisco’s population is homeless, according to the 2017 San Francisco Homeless Point-In-Time Count and Survey. One would think that such a high rate of unemployed homeless people would create a buyer’s market for employers. Aren’t all these low-skilled people competing with one another for work, thus driving the price of labor down? It should be easy to hire as many workers as one needs.

But it doesn’t work that way, because San Francisco won’t let it work that way. The municipal government makes it illegal to give a job to a low-skilled homeless person, because, as of July 1, the minimum wage in San Francisco is $15 per hour. It’s virtually impossible for an employer to derive $15 worth of value from someone with few life skills, much less job skills.

For example, many homeless people have drug problems—41 percent of them in San Francisco, according to the survey—that make it difficult for them to show up on time consistently, or to be at their best when they do show up. This doesn’t mean that their work is valueless. They may be excellent workers, say, 70 percent of the time, and useless the other 30 percent of the time. But that ratio makes it hard for their work to be worth $15 per hour, especially when you factor in other costs of hiring an employee and running a business that go above and beyond the cost of wages.

Similarly, many homeless people—39 percent of them, in San Francisco—suffer from mental illness that prevents them from bringing $15 per hour of value to their employer. This, too, doesn’t mean that their work is valueless. The minimum wage in San Francisco, however, makes valueless their work, and the work of anyone who can’t bring their employer at least $15 per hour. 

San Francisco’s central business corridor, down Market Street and adjacent streets, is a testament to the failures of the mandatory minimum wage. In these buildings, growing companies are eager for labor, some of it unskilled. Outside, people down on their luck, out of work, and in need of stability are camped out, doing nothing. Everything that we know about homelessness tells us that many, perhaps even most, of these people are not suitable for work, primarily because of problems with mental illness, drug addiction, or both; some others can work, and want to work. But in San Francisco, they effectively cannot. 

Politicians tout minimum-wage increases as societal improvements, but the mandates actually diminish opportunity for the people who need them most. Given San Francisco’s homelessness crisis, it’s hard to think of a more destructive policy response than a law that makes it illegal for a low-skilled but industrious person to offer his labor for the most that an employer can afford to pay him.

Photo by Justin Sullivan/Getty Images

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