Friday, January 3, 2014

The Minimum Wage

Very soon, the administration will attempt to pirouette en pointe yet again to the tragedy of unequal income distribution and the deprivation caused by the current minimum wage. It’s important that the arguments and pleading be met with actual fact, and not the vague insensitive sounding dogma which will fail to convince and will only stir up retaliatory warm feelings that will simply make matters worse.

Today, the minimum wage is mostly paid for entry level jobs that require no proven skills or practical job experience. If you’ve ever talked to an unemployed, job seeking recent high school graduate you know the familiar refrain: “They won’t hire me without experience, but how can I get experience if they won’t hire me”? Minimum wage laws are partly responsible for this lament. Employers are required to pay a specified “minimum” wage to new employees and so must ask for experience, skills, and proven maturity in return. If the minimum wage were lower, or if there were no minimum wage at all, employers could more easily afford to hire the unskilled entry level worker and provide “on the job” training and the valuable experience that younger workers all complain about not being able to acquire.

So let’s ask ourselves: Who actually benefits from the minimum wage?

In general, it’s safe to say that a minimum wage only directly benefits those who already have a job by adding marginally to their income. In the long term it’s a different story. The minimum wage worker has no care for what the minimum wage is in the long term, as they don’t, or shouldn't intend to stay minimally employed. As time passes they will gain job skills and habits that will increase their worth to an employer above whatever a minimum might be. But let’s look at an example of what could happen.

Fast food restaurants are a commodity business. They all buy the same raw materials from the same suppliers at marginally the same price. They live and die in the public square by brand acceptance, efficiency and volume. Now for arguments sake lets say that the minimum wage for fast food workers were doubled. All fast food restaurants would face the same increases, no one would have a cost advantage over the others, and so what’s the fuss? Everyone passes the cost increase through to the consumer and we all pay a little more. This is sort of the fun part where economics plays such a clearly understandable role. It’s a hard fact that the more something costs, the less of it people will want to buy. People will buy more cheeseburgers for $1.00 than they will for $5.00. Nothing complicated about that. So the result is that the higher minimum wage will result in fewer burgers sold which will mean less profit for the chain, which will make the stock price go down. Boo Hoo right? (Wall Street Bastards) But what then? Because there is less profit to be made, people with money to invest will invest less, and investment capital will decrease. Less investment capital will lead to fewer new stores being opened, fewer new products being introduced, fewer new jobs, and even less training. And here’s the fun part: Automated fast food front counter sales points. Just like the self check out at the grocery store, it lets business operators use ONE check out person to serve multiple lines. In the fast food environment some people in the industry just LOST their jobs. And future generations of teenagers will no longer have these as their summer jobs, their first work experience, their foray into the working world that might just inspire, and motivate them to become worth more than any minimum wage.

There are others who benefit of course. Politicians benefit because they get to posture as supporters of the working class. Unions get the same benefit even though their stated goals are to increase wages for the dues-paying “employed” which makes it less likely that the unskilled will be hired in the first place. And kind-hearted people everywhere get to imagine that they stand “four square” for uplifting the working poor.

So the answer to our question: Who benefits from the minimum wage is this. In the short term workers currently and temporarily employed in entry level jobs benefit. Politicians benefit. Union leaders benefit, and kind hearted people benefit. However, those who do NOT benefit include workers who lose their jobs or see their hours cut as companies try to maintain profitability, those who are never able to find a job due to their lack of skills and experience and those still in school who can find no part time job and begin to see that there may very well be no place for them in the labor market.

When thinking about public policy it is important to look closely at the likely result of those policies and pay less attention to how they sound, or how it makes us feel to support them.

Discussions about a minimum wage often turn adversarial and pit the poor downtrodden against cold hearted business owners, but this examples shows us that it’s not nearly as simple as that. Would that it were.

But that’s just what an average guy thinks.

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