It’s a new year, and an election year for Congress, so it’s about time for politicians and activists to bring up the minimum wage again. John Edwards, the former Senator from North Carolina and failed Vice-Presidential candidate, has been crusading for a hike in the federal minimum wage. It has been at $5.15 since September 1997, when it rose 35 cents from its previous level. “My view is, it should be $7.50 an hour, and I can make a great argument for it being a lot higher than that,” Edwards explained. If that were to happen, the national minimum wage would almost reach Washington state’s minimum wage of $7.67 per hour, currently the nation’s highest, and pass Vermont’s number two status of $7.25 per hour.
Raising the minimum wage has long been a rallying cry for liberals. It gives them the opportunity to pontificate and posture as they set themselves up as the champions of working America. They beat their breasts and boast of their solidarity with the tiny percentage of American minimum wage earners who are the sole breadwinners for their families. Their goal to raise the minimum wage is noble since as it rises, the poor and huddled masses will be better off, right?
Minimum wage hikes are a classic example of Quinn’s First Law in action — “Liberalism always produces the exact opposite of its stated intent.” In this case, the liberal intent is to give minimum wage earners more money and increased buying power with every raise in the minimum wage, but reality shows the exact opposite happens. The idea of a minimum wage became law almost 100 years ago in Massachusetts, but eleven years later in 1923, the Supreme Court found that wage requirements for private companies were unconstitutional because states had no right to interfere with private pay agreements. Fast-forward to 1938, and the Fair Labor Standards Act established a federal minimum wage of 25 cents. Try as I may, I cannot see where Congress derives authority as outlined in Section 8 of the Constitution to pass any law for a national minimum wage.
But after almost 70 years of existence, the idea that the federal government can legislate our wages is a fait accompli, and the likelihood of the minimum wage of being repealed is close to nil. So rather than focusing on the legality of the minimum wage, I’ll consider its effects on society. When I first started working, I earned the minimum wage for about a year. After that first year, I got a raise, and I have never returned to minimum-wage work. I’m hardly unique in this. Shawn Ritenour of the Ludwig von Mises Institute explains the minimum wage this way:
Nearly two-thirds of all minimum wage employees who continue employment are earning more than the minimum wage within a year. More than 97% of all employees in the United States move beyond the minimum wage by age 30. Those who do not progress to a wage above the minimum either lack the skills or motivations for them to be attractive hires at a higher rate of pay. The key to increasing one’s income is not raising the minimum wage, but remaining employed. This is one reason why the minimum wage can actually be devastating to the working poor. The minimum wage tends to hurt the lowest skilled workers by making them less employable.
Less employable? How can that be, since the minimum wage is supposed to help out the poor and unskilled? It’s really not all that hard to understand if we figure out the real-world consequences whenever the minimum wage is raised. Warning: thar be math ahead!
For our Gedankenexperiment, let’s imagine a fast-food franchise. To make the math easy, let’s say the store manager has hired 40 employees so he can have 10 people working at a time from 9 am to midnight all seven days a week. If we multiply the 15 hours a day the store is open by 7 days and then by the 10 employees working, we find that the store manager has 1,050 hours of wages per week he needs to pay out to his workers. At a wage of $5.15 each, he needs to make a minimum profit of $5,407.50 each week to just pay his workers, and that’s ignoring other operational costs such as rent, power, supplies, and his own pay. If John Edwards’ dream of a $7.50 minimum wage becomes reality, then this same store manager needs to make a minimum profit of $7,875.00, or almost $2,500 more each week, to pay his people. With the rise in employee costs, the store manager has three options: cover the increase by lowering his own pay, make do with fewer man-hours of work each week, or pass the cost on to the public by raising his prices. Let’s look at each one.
Store manager pays for it
If the store manager is going to pay for the increased cost of labor from his own pocket, he will have to cough up almost $130,000 a year. I don’t know of anyone who is willing to see his yearly income drop by $130,000, do you? Contrary to what some people might think, a fast-food store manager works very hard for his money. I know one who owns two franchises. He is not poor, but he most certainly is hard-working, putting in at least 60 hours a week to run the two stores, and I know that he couldn’t afford to absorb the almost $2,500 a week our hypothetical manager would need to pay. A store manager who pays for this minimum wage increase from his own wages has just been shivved in the back by the self-professed liberals who care so much for the working man.
Fewer man-hours worked
Staying open 15 hours a day with 10 workers each hour will cost the manager almost $2,500 more each week, so he may decide to stay open 14 hours with 8 workers. This would drop the number of weekly man-hours by 288, and the total cost of wages becomes $5,880, or almost $500 more than before. If the manager wants to break even with the new minimum wage costs, he would need to staff an average of 7.3 workers during the 14 hours the store is open. He could do this by not being fully staffed during the slower parts of the day. This means that the people who remain must work harder to maintain the same level of service, or the manager will have to accept the idea that his employees’ ability to serve their customers will suffer. But I’m sure the customers will put up with worse service, right? After all, the lives of the workers are now better with the minimum wage hike. But are they better? Certainly not for the two who were laid off, and not for the rest who work fewer hours at a more demanding job. They basically all got screwed by the liberals who profess to care about them.
The last option for the store manager is to raise the price of his wares. Since the people who visit fast-food places the most are the lower and middle classes, their quick bite to eat will be a harder hit on their budgets. As people pass their increased costs on to others, prices tend to inflate, which results in working people having less available pay and less purchasing power. With each increase in the cost of some good or service, there will be a drop-off in the number of people who will buy that good or service. We saw this with the recent rise in gas prices and how people voluntarily worked to reduce the miles they drove. If our hypothetical manager passes on the increased costs to the public, then the minimum wage hike affects all the people who stop by the store. Santa Fe raised the minimum wage of stores with 20 or more employees to $9.50 this year, and University of Massachusetts-Amherst professor Robert Pollin summed up how the Santa Fe businesses would adjust to a higher minimum wage: “The most likely way is raising prices to absorb the cost increases.” Again, the people who suffer from the raise in the minimum wage are the same people whom liberals claim to cherish.
Each of these three possibilities adversely affects the same working-class people that the liberals claim they are working to help. I doubt that any one of these will be the outcome of a minimum wage hike; it will most likely be a combination of all three.
Shawn Ritenour summed up the conventional wisdom of the minimum wage with the following:
The bottom line is that everything we have heard from conventional wisdom regarding the minimum wage is false. The poor are not that destitute. The minimum wage does not generally lift people out of poverty, because it exacerbates unemployment for lower skilled workers. A very small portion of minimum wage workers are the sole income earner for their families, and the vast majority of those who work a minimum wage job will earn above the minimum wage provided they stay employed. Staying employed is the very thing that a minimum wage hike makes it harder to do. Raising the minimum wage in an effort to help those truly in poverty would be not the height of wisdom, but the depth of folly.
Since this conventional wisdom is liberal conventional wisdom, and it produces the exact opposite of what the liberals profess they want, Ritenour succeeds in pointing out yet another instance of Quinn’s First Law holding true.