Minimum Wage

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by Elgin Hushbeck, Jr.


living wageThere is a growing movement on the left to increase the minimum wage, or as it been relabeled, a living or in even some cases a just wage. As the relabeling makes clear, this is often seen, not just as an economic issue, but as a moral issues in which greedy business owners are pitted against the oppressed and exploited workers (On the labels, see my previous post).

As Christians we are after all exhorted to “stop expressing love merely by our words and manner of speech; we must love also in action and in truth” (1 John 3:18 ISV). So our duty would seem clear, to take action and stand with the oppressed.

But John’s exhortation is not merely to love through our actions, but also in truth, and herein is the rub. Simply relabeling something does not change its nature.  Calling something a just wage, does not make it just.  The wages for any particular job are part of a complex web of economic relationships.  Employers have work that needs to be done and are willing to hire employees to do that work.  Employers are not completely free to set wages at whatever they want.  If they pay too low, they will not find people willing to do the work, if they pay too much, workers will be easy to find, but customers are likely to find the prices charged too high. Thus like so many things in the economy, wages are a balancing act between completing forces.

point to ponder

It is just math; something has to give.  Increase prices too much and customers stop coming.  Let employees go and service declines and again customers stop coming. 

Often the charge is made that employers are hoarding huge piles of money while they exploit workers.  This is belied by the simple fact that most business fail.  It is also belied by the fact that workers must be paid first, and many a business owner has had the “privilege” of going without because after paying wages and bills, there was nothing left for them.

Thus it should not be a surprise to anyone that when cities like Seattle raised the minimum wage, many small businesses closed.  When San Francisco raised its minimum wage likewise many business closed, including a historic bookstore that was beloved by the community.

Why? It is simple, government can demand that employers pay more, but aside from Obamacare, they cannot demand that customers pay increased costs.  In Seattle the average restaurant spent 36% on labor, and made about 4% in profit, the difference going to food and other costs.  Without a price increase or labor cuts the increase in the minimum wage would drive labor cost up to 42% – 47%.

It is just math; something has to give.  Increase prices too much and customers stop coming.  Let employees go and service declines and again customers stop coming.  Even before the increase owning a restaurant was not an easy business to be in, so it should not be a surprise that many owners just gave up and closed.

Nor is this restricted to just restaurants.  Twenty Two top Retailers have profits of $34 billion dollars, which sounds like a lot. But they also employ 5.8 million people for an average profit per employee of about $6000.  Not a lot but a good return on investment that allows these companies to remain in business. Not all of these are minimum wage positions, but increasing the minimum wage tends to shift all wages up so increasing the minimum wage to just $12/hour and this changes the profit into a loss of over $1000 per employee. Increasing this to proposed $15/hour and instead of making $34 billion, these retailers would be losing $34 billion.

To stay in business, they would have to increase their prices, though given customers resistance to price increases that can be difficult. The only other option is to reduce the workforce, which raises the question, what good is a $15 minimum wage if it costs you your job?

In recent years, an additional result of increasing the minimum wage is to accelerate the push to automation. Fast food restaurants are already experimenting with automation both at the counter and back in the kitchen. The higher the minimum wage the more cost effective such automated machines will become.

Thus increasing the minimum wage will have some short term benefit for a few workers, those lucky enough to still be employed when the wage kicks in, but the benefit will be offset by some increase in prices, and this benefit will decrease over time as the economy works itself out to the new higher price level.  Others will see their wage drop to $0/hour as they lose their job.

The worst off however will be those trying to enter the job market for the first time.  This is the real insidious damage done by the whole concept of a “living wage.”  Minimum wage jobs are not supposed to be jobs one can live on. These are entry level positions, positions many if not most people start at, only to move on to better paying positions once they develop job skills and experience.  According to government figures in 2014 of the 131.5 million people in the workforce, only about 1% or 1.3 million, earned the federal minimum wage, which demonstrates that virtually all do move on, that is if they can get into the workplace to begin with.

The truly tragic part of such increases, is that it makes these entry level positions even harder to get.  Without the entry level positions it can be very difficult for people to learn the job skills needed to get and hold a job. These are skill most of us take for granted, such as showing up on time, acting professional,  working hard, etc., but for those who have hired first time employees, sadly for many these are skills that do need to be learned. With chronic unemployment at levels not seen since the Great Depression, now is hardly the time to be further restricting the job market making it even harder for people to get their first job and learn the skills that will allow them to succeed in life.

So while at first blush raising the minimum wage may seem like a compassionate thing to do, it is hardly loving in truth as it causes far more harm than good.   Perhaps that is why the new bill passed in California only raises the minimum wage $0.50 per year until the end of Jerry Brown’s term, but $1.00 per year after that until the new minimum is reached, leaving the next Governor to deal with the consequences.

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