This commentary originally appeared in San Antonio Express-News on April 26, 2016.
San Antonio Independent School District recently approved a big pay increase for many of its full-time workers, and the decision has a lot of people scratching their heads.
The district’s decision to arbitrarily raise its minimum hourly wage from $10 to $12 — a 20 percent pay raise not based on merit — comes at a difficult time for SAISD, which is not only struggling with soaring debt but is also seeing its student population slowly disappear.
While school district debt is not uncommon, the pervasiveness of public debt in SAISD is alarming. According to the Bond Review Board, SAISD’s debt totaled almost $1.1 billion in fiscal year 2015. That’s up from $723 million in 2010, which means the debt has jumped by roughly $375 million in five years. SAISD’s $1.1 billion in total debt works out to a whopping $20,330 per student.
Keep in mind all this debt is being put on the taxpayer credit card at a time when student enrollment is shrinking.According to the Texas comptroller’s Debt at a Glance transparency tool, the number of students enrolled in SAISD declined by 4.9 percent from the 2004-05 to the 2013-14 school year. Statewide student enrollment grew by almost 15 percent over the same period.
With debt up and student enrollment down, it’s easy to see that raising the minimum wage is a bad idea. But the economics behind the district’s decision doesn’t make sense either.
According to the law of demand, an increase in the price of something results in a decrease in the quantity consumed. In the private labor market, labor demand is based on multiple factors, but the most prevalent is a worker’s productivity. As productivity increases, the employer finds that there’s more output per worker, rewarding workers with a higher market-driven wage.
A minimum wage distorts this efficient outcome by artificially pricing labor based on politics instead of merit. Unfortunately, some economists and most politicians get this basic economics concept wrong. But not all.
Economist David Neumark recently noted, “The overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers.”
In other research, economists find the minimum wage redistributes income from low- to high-wage workers — the opposite of an intended goal. This happens because a higher minimum wage not based on market activity eliminates low-wage workers, substituting them with new technologies built and serviced by high-wage workers.
Based on these destructive results, more than 500 economists recently signed a statement to not raise the federal minimum wage, a logic that applies to local governing institutions.
SAISD’s artificial increase in the minimum wage defies basic economics and its dire fiscal situation. Merit-based pay increases instead of arbitrarily increasing pay for workers with different levels of productivity and experience at or below $12 per hour would best serve taxpayers, workers and students.
Ph.D. Economist at the Texas Public Policy Foundation. Blog posts are publications by the author.