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Raising the minimum wage (04/09/2014)
By Frances Edstrom
Raising the minimum wage

The Minnesota Legislature has proposed raising the minimum wage to $9.50 an hour from the current $6.15 an hour. What will be the effect of such a raise?

Certainly it means that the lowest wage-earners will make more money — and, conceivably, so could everyone else. It’s going to be difficult for a business to raise the lowest-paid workers’ wages and leave all the other wages where they are. Would you be happy if you had been making $5 over minimum wage, and suddenly, with the legislative change, you are making only $1.65 more than minimum? I wouldn’t be. And so it will go up the compensation ladder. 

Such a business-wide increase in expense, which amounts to an innocent-sounding $3.35 more per hour, becomes millions of dollars. What will businesses do? 

What they won’t want to do is to decrease profits drastically. Stockholders (anyone who has an IRA or belongs to a union is a stockholder) won’t stand to see a drop in profits. Businesses also won’t reduce the compensation for top management, because doing so will mean that the top candidates won’t want the job — it’s the same at any wage level.

Businesses could, as has been pointed out, reduce the number of minimum wage workers they employ. Constant advances in technology certainly help them to do so, and companies that make labor-saving devices will enjoy a new profitability. We’ve already seen the beginnings of eliminating workers with self-checkout kiosks, and ordering a restaurant meal on a touch screen instead of from a person. Even burger-flipping is becoming automated. However, that won’t change the fact that everyone who is still working will necessarily be making incrementally more in wages.

Let’s recap. The minimum wage goes up $3.35. Minimum wage workers make more. All other workers will probably make more, too, eventually. Where does the new money come from? Not profits. Not top management. The new money comes from increased prices for goods and services. 

In 1990, the minimum wage was $3.80. A candy bar cost 25 cents. A fast-food cheeseburger was 89 cents. As the cost of labor rises, the cost of goods rises, as well. 

As the cost of goods rises, the cost of living rises. The cost of rent rises; the cost of utilities rises; the cost of entertainment rises. The whole boat floats higher in the water, not just steerage.

And all this time, the minimum wage worker is still making minimum wage, a higher amount than in previous years, but still minimum wage.

The rising cost of goods and services — inflation — gobbles up any raise the Legislature gives the minimum wage worker, and people who count on a minimum wage job to support a family, or just themselves, are back to where they have always been — poor.

Raising the minimum wage sounds great. It especially sounds great to state senators and representatives who are facing re-election in the fall, because they rightly assume that they are buying some votes.

The problem with using minimum wage as a way to lift people out of poverty is that it doesn’t work. Poor people still won’t make enough money.

We must have incentives, or disincentives, to curb the practices in our society that keep people poor — out-of-wedlock pregnancies, drug abuse, crime, lack of good and fair education, and mental illness among them.

Raising the minimum wage does not raise anyone out of poverty. 

 

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