It’s Official: Payday Lending, Minimum Wage Initiatives Off November Ballot
Supporters of two proposed Missouri ballot measures have thrown in the towel weeks after the Secretary of State’s office announced the initiatives had come up short on signatures. The Kansas City Star reports that the two groups pushing the measures, Missourians for Responsible Lending and Give Missourians a Raise, have decided to drop their lawsuits challenging the Secretary of State’s findings. While it is clear the issues likely are not dead in the state, it appears they are going into hibernation. The Show-Me Institute has written a great deal about both payday lending and the minimum wage, and we will have an extended examination of the latter in a paper to be published this month.
At their core, the solutions so often pushed ahead for both issues — like capping loan interest rates and raising the wage floor — share a common problem of policy. First, payday lending exists in large part because its customers cannot get credit anyplace else; payday loans are very, very expensive, but if the alternative is having your gas or electric flipped off for lack of money, it is an option many of the working poor would want to remain available. Cap payday interest rates, which are basically set to account for the risk of default, and you will have fewer payday loans, which leads to other, potentially more difficult, problems for the lenders’ former customers. One way or another, those bills have to get paid. Payday loans serve that need and risk, for a price.
Raising the minimum wage presents a similar problem. By raising the floor for what workers must get paid, employers are incentivized to hire only the most skilled labor. In fact, studies show that raising the minimum wage harms the very people it is supposed to help — those on the bottom rung of the pay scale. As David Neumark wrote for the Show-Me Institute in 2006:
When a minimum wage goes up, the higher wages don’t always go to the workers who need them most. Minimum wage laws create winners and losers — the winners see their wages and incomes rise, while the losers are unable to find jobs or to work as many hours as they would like. If the winners were mostly unskilled workers in poor families, a minimum wage increase might be worthwhile. Unfortunately, this doesn’t seem to be the case.
Put more succinctly, raising the minimum wage makes it more difficult for low-skilled workers to find employment. While raising the wage sounds on the surface like compassion, in practice, it oftentimes means anything but.
These are serious issues that deserve serious debate from both sides of the issue. For now anyway, it appears public votes will have to wait.