For all the perceived benefits of increasing the minimum wage—moving the lower income population into the middle class, stimulating high-school consumer spending—continued increase in minimum wages will continue harm the very people meant to be aided, including college students.
Individually, you’ve got to love Oregon’s minimum wage (MW). At $8.40, ours is second only to Washington, barring inclusion of individual cities with higher minimums like San Francisco.
It means more spending money for MW workers, or more for rent, insurance or beer, etc. And surely it all comes from the pockets of the fat cats in their corner offices, right?
Proponents of the MW increases argue that it’s got to increase in order to keep up with the pace of inflation, having only the best in mind for the lowest-paid, perceived poor of the country and state.
Greg Asay of San Francisco’s Office of Labor Standards Enforcement said in a San Francisco Chronicle article about the 2009 MW increase to $9.79, “For people who are just getting by, this uptick is keeping their heads above water.”
It might work for a bit, as that article interviews people who will use the extra dough on rent and health insurance (yet neither sound like the discretionary spending we’d hope for).
But what if the MW keeps up with inflation, because it is inflation?
If raising the minimum wage to $9.50 is a good idea and it will help produce something of a middle class, than why not raise it to $20? Obviously employers would have to make cuts or increase prices.
Unless you think they can just take it out of their own pockets, and not company profit. But even a $1 increase on a full-time minimum wage earner costs the employer and additional $2,000 a year—not including extra Social Security taxes on the employer.
A restaurant owner with 20 employees who makes his or her living from a company profit (say what is defined as rich now) of $200,000, would have to find more than $40,000 to do it! Not a chance—jobs will have to go, or prices will go up.
And higher prices prompt yet more legislation for increased MW to keep up with inflation.
Worse yet, they effectively prevent unskilled workers with little experience from being hired, whose work might be worth an amount less than the minimum.
Economist Walter Williams writes, “The effect of minimum wages is that of causing unemployment among low-skilled workers. If an employer must pay $5.15 an hour, plus mandated fringes that might bring the employment cost of a worker to $7 an hour, does it pay him to hire a person who is so unfortunate as to have skills that permit him to produce only $4 worth of value per hour?”
Oregon’s chart-topping unemployment rate of 12.1 percent ensures a lot of people are looking for work—any work. More than ever, employers cannot afford to hire those whose productivity is viewed as less than the MW, including college students with less than ideal retail experience.
So homeless teens without job experience and low-skilled migrant workers are prevented from even gaining the experience necessary to make the living wages that the MW is supposed to promote.
Meanwhile, according to the Bureau of Labor Statistics, 90 percent those who do find MW jobs gain enough in productivity that wages increase for them after only a year, according to the National Center for Policy Analysis. But lower skilled workers never get the chance.
There is a debate about whether increased MW directly affects unemployment.
A 1992 increase of the minimum wage in New Jersey prompted a series of comparison studies, by David Card and Alan Krueger, with Pennsylvania, whose rate stayed the same. Their studies found either no effect on unemployment, or there was only a slight increase.
Considering that the United States has had a consistent growth economy, and as noted by some critics, the studies by Card and Krueger were on fast food, it’s just as easy to say there was no decrease in unemployment because, first, there was still an increase of jobs available, and, second, demand for fast food didn’t decrease despite a price hike.
In other words, fast food should’ve been charging more all along.
And even if there is no overall increase in unemployment, the number of productive hours worked, the cost of basic goods and the ability of unskilled workers to get jobs all head in a negative direction.
A further straightforward “before and after” glimpse is that of Hong Kong, who went from no MW to mandated worker benefits. Thomas Sowell, a laissez-faire economist, noted that unemployment went from 1.4 percent to 7.3 percent by 2002, after Chinese hegemony was increased in 1997.
The Obama-Biden campaign promised to “raise the minimum wage to $9.50 an hour by 2011, and provide tax relief to low- and middle-income workers.” The administration seems to forget that the bottom 43 percent of Americans already pay no federal income tax after tax credits.
Living wages won’t come about by mandating them—they only keep the most vulnerable and in need away from them. Everybody who is willing to work should be able to. But our high minimum wage and its promised increase ensure this will not happen.