The reality of raising the minimum wage


(12/18/2013)

From: Gene Thiele

First and foremost, remember that raising the minimum wage raises all hourly wages. Labor unions use the minimum wage as their starting point in their contract negotiations. If a union’s base wage is currently 200% of the minimum wage, they expect to maintain that margin for their new contract. Their $14.50 an hour becomes $18.50 an hour before the negotiations even start. And nonunion shops tend to go along to compete for an experienced workforce.

When Bob asks his employer to raise his salary, what is he offering in return? (Of course Bob doesn’t really ask his employer for a raise, he asks his senator to do it for him). If the value of Bob’s labor remains constant, he is not advancing his skill set or knowledge level, all he is doing is increasing the cost of his employer’s goods or services. The employer now has two options. Well, actually three options, if you consider closing the doors of the business an option.

Let’s consider the two most likely options. One is to reduce cost by reducing the labor force. In most cases, labor is the main cost of operating a business. In this option, Bob and many others are out of a job. Now, it doesn’t matter what toilet paper costs. Bob is now a ward of the state. So what is Bob to do? He needs to increase his value by improving his skills or education. Yes, post-secondary schooling can be expensive, but much of it is subsidized by state and federal programs. Next time Bob applies for a job, it may not be a minimum wage job. And why is it no one is willing to start in the mailroom and work their way up anymore?

Option two actually is more likely and more common. Bob’s employer sees an increase in cost to provide his goods or services and passes the cost on to the consumer. And remember, the labor increase is seen though the entire spectrum of hourly wages. Now Bob is paying $8.40 for toilet paper, ironically, increasing the same 20% as his wages. So what is Bob to do now? First, I know a lot of college graduates who share living expenses with roommates until they get their careers going. A small house with a couple of roommates and now Bob has some spending money each month. Some people even have more than one job. Why is no one willing to make some sacrifices to achieve their own success, rather than relying on the kindness of strangers?

Still think we should raise the minimum wage? Ask yourself, “Why not make it $20, or $40, or $60?.” Because you know in your heart-of-hearts, a raise in the minimum wage is both inflationary and a low income job killer. And we would all be paying $100 for toilet paper.

 

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