Raise the wage and lose the job

4 free views left!

By Tracy Warner
Editorial Page Editor

Friday, February 15, 2013

Among tried and true politically safe policy proposals, this is one of the safest. It is popular year in and year out, decade after decade.

“Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty, and raise the federal minimum wage to $9 an hour,” President Obama said in his State of the Union address Tuesday. “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank, rent or eviction, scraping by or finally getting ahead. ... In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up while CEO pay has never been higher. So here’s an idea that Gov. Romney and I actually agreed on last year: Let’s tie the minimum wage to the cost of living, so that it finally becomes a wage you can live on.”

It’s natural to assume most of this statement is true and good. Who in their right mind wouldn’t want to give the working poor a raise? But it doesn’t work that way. Raising the minimum wage, an arbitrary increase in the price of labor, means fewer jobs, higher unemployment especially among the young, and does little to help the poor. Economists are not united in these conclusions, as if economists are ever united, but the preponderance of evidence and the fundamentals of supply and demand suggest it is true. Raise the cost of hiring entry level workers, and fewer will be hired. Set a wage above the economic value that worker produces, and the job will go away. Obama proposes nearly a 25 percent increase in the federal minimum wage, from $7.25 to $9 per hour. It’s safe to say that this will be popular, and that it will cost jobs.

To begin with, most of the people working for minimum wage are not poor. Census data shows about 10 percent of minimum wage workers come from households below the poverty line. Michael Strain of the American Enterprise Institute quotes statistics provided by the White House itself, that show on average minimum wage workers earn less than half their family’s income. Two-thirds come from families with income more than twice the federal poverty level. They are teenagers, said Strain. They are spouses working part-time. They are retirees earning extra income. Raise the minimum wage and some of those people will be grateful for their higher pay. Some won’t have any pay at all. They won’t have a job.

But isn’t it true that we in Washington have tied our minimum wage to the cost of living, and it has risen automatically to $9.19 an hour at present, and we have suffered no consequences? It depends on who you talk to. Unemployment among Washington teens a year ago was nearly 30 percent, the fourth highest in the nation, according to the Employment Policies Institute. Employers, especially in small businesses, struggle to pay entry-level workers more than their labor is worth, and consequently hire fewer of them. This is one of the major problems that Senate Bill 5275 attempts to rectify. It would allow small businesses to pay 10 percent of their workers a temporary “training wage” at 75 percent of the state minimum, or equal to the federal minimum wage, whichever is higher. Right now it would be $6.89 per hour.

Raise the minimum wage and the people most affected will be the beginners, the people looking for their first job, those trying to find someplace, anyplace, in the working world and begin their long and difficult climb to greater prosperity. Raise the minimum wage and you will reduce their opportunities.

Unemployment is still at crisis levels in the United States. Unemployment among the young is worse. We can congratulate ourselves for raising the minimum wage. We shouldn’t feel good about pricing people out of the job market.

Tracy Warner’s column appears Thursdays and Fridays. He can be reached at warner@wenatcheeworld.com or 665-1163.

» Recommend this story.

» 14 comments on this story

Want to comment on this story? All Wenatchee World members are invited to comment on stories, by using the form below. Please know that we at wenatcheeworld.com hope our site is useful, entertaining and civil. So we'll delete comments that are obscene, abusive or way off topic. We appreciate it when readers use the "suggest removal" button to flag inappropriate comments. For more about interacting with the site, see our Use Policy.

lonedog3 3 months, 1 week ago

how about we cut the stupid federal government spending and stop raising taxes? Stop sending so much of OUR TAX MONEY to countries that hate us! Let them hate us for free. Even better why not just cut the federal government down to a reasonable size? Why do states really need 2 and 3 senators or congressmen? 1 would be fine if they truly worked for the people that elected them rather than the lobbyists. Do our elected officials really need to make $100 K plus a year?

milo 3 months, 1 week ago

I take exception to your premise. There is no credible evidence that raising the minimum wage will mean that fewer workers will be hired. That viewpoint assumes that demand for low wage workers is completely elastic. In reality, it is quite inelastic. Take the case of a small business with low wage workers. If that business could operate with fewer employees, don't you think it already would be? No employer keeps people it doesn't need on the payroll. It is far more reasonable to believe that raising the minimum wage would create jobs by increasing the spending power of low wage workers and increasing consumer demand for everything boosting the entire economy. The lesson to be learned from this is that the simplistic application of general economic principles to any specific demand curve is useless without first identifying every human factor involved in the decision matrix related to that particular demand curve. Assuming that if something costs more then less will be purchased is simple economic illiteracy.

kyook 3 months, 1 week ago

You may have neglected to take into consideration the fact that when it costs more to produce a good or service then a business has two choices, it can either pass that increase on to the consumer who will decide whether said goods or services are still viable at the new prices. If they are then good for the business, if not then the business must endeavor to reduce their costs of production, ie: worse quality goods or services or less people on the payroll.

milo 3 months, 1 week ago

I didn't neglect the cost side at all. An increase in the base minimum wage effects all similarly situated businesses the same. The competitive forces remain unchanged. There are two choices but not the ones you named. The two choices are higher prices or lower profits. If the enterprise in question could reduce their costs of production or operate with lower labor costs it would already be doing so regardless of other factors.

FootballNut 3 months, 1 week ago

You guys crack me up. If what you're saying is true, then why not make it $20 an hour? There should be no such thing as a federally mandated minimum wage at all. Let the market place take care of it.

kyook 3 months, 1 week ago

Why stop at $20 an hour? Why not make it $40 or $50 an hour? Just think how many people would then be making a decent living wage. But wait....wouldn't the cost of goods skyrocket or maybe massive layoffs would have to happen due to the loss of sales due to the high cost to produce goods?

Or maybe the whole world would just adjust accordingly. I think not.

milo 3 months, 1 week ago

"If what you're saying is true, then why not make it $20 an hour?" Because too large an increase would be inflationary. Wages should keep pace with gains in productivity. "There should be no such thing as a federally mandated minimum wage at all. Let the market place take care of it." That would only work if unemployment was extremely low and competition for workers was high. Lacking competition for skilled workers and no minimum wage, average wages would plummet and the economy would really go down the tubes.

Norm 3 months, 1 week ago

"Because too large an increase would be inflationary. Wages should keep pace with gains in productivity."

That would put the minimum wage at $21.72 per hour (beginning with a baseline at 1968).

http://www.cepr.net/documents/publications/min-wage1-2012-03.pdf

milo 3 months, 1 week ago

"Why not make it $40 or $50 an hour? Just think how many people would then be making a decent living wage. But wait....wouldn't the cost of goods skyrocket..." Yes if you made the minimum wage $40 prices would go up dramatically. No one is suggesting that. You are committing the rhetorical fallacy of exaggeration.

"...or maybe massive layoffs would have to happen due to the loss of sales due to the high cost to produce goods?" There wouldn't be any lost sales because all producers of that good or service still have the same competitive position to each other they did before. So there would be no need for layoffs. The cost of a pizza goes up fifteen cents, who cares? A motel room goes up 20 cents, again who cares?

"Or maybe the whole world would just adjust accordingly." It always has.

kyook 3 months, 1 week ago

"The cost of a pizza goes up fifteen cents, who cares? A motel room goes up 20 cents, again who cares?"

The price of pizza goes up due to higher wages to produce, then again because the price of flour/pepperoni/tomato sauce/anchovies goes up, the cost of fuel to transport the ingredients (which go up too), etc, etc, etc ad infinitum. End result...a lot of people care because they can no longer afford it because their own wages are not going up as fast as the combined price increases on the products/services.

Wages are a very controllable expense and linked to every other stage of the process.

Dudleydoright 3 months ago

In Restaurants in Washington state, something I am very familiar with, we employ about two less employees per restaurant than in states with lower wages. Who does this effect? entry level workers. It also effects prices. In states with the federal minimum wage and a tip credit prices are roughly 10-20% lower. It really is that simple, business will make a profit by raising prices or cutting service, not reduce profits when expenses go up. Do you want to pay more so Jr. can have more "mad money"? The vast majority of minimum wage earners in restaurants receive tips at least equal to the minimum wage in addition to that wage. The other minimum wage earners? for the most part kids living at home.

barleywine 3 months ago

In the old days, the state cut a deal with restaurants to let them employ servers at far less than the minimum wage, assuming they they would make up the difference in tips, which was often the case. This allowed for very cheap labor (and not just for teenagers, since most staff had to be 21 to serve alcohol) and unfairly put the burden on the customer, who was paying anyway, to make up the difference. Were restaurant prices to consumers (discounting inflation) lower then as a result? Not at all.

Now all restaurant workers in Washington make minimum wage plus tips, which is far more equitable (and should cause diners to be a bit less willing to tip for poor service.) And many adults, with voting and other legal adult rights, work in restaurants. I don't think Warner's statistic of 30 percent teen unemployment shows the ineffectiveness of our highest-in-the nation minimum wage, but rather that teens might be looking for more than minimum-wage jobs.

Dudleydoright 3 months ago

Barley your simply wrong. Server wages now account for roughly 10% of a restaurants costs vs about 6% with the tip credit. The fact is most servers working full time make 15-$25 an hour. As far as teens, why don't we hire teens now? L&I rules for hours worked simply do not work for sit down restaurants. You can't be sending home workers at 7pm if it is busy so we simply don't hire them anymore. One last thing, 43 states have a tip credit, 49 states have a lower minimum wage than Washington, guess which state has the highest restaurant prices?