Why My BS-O-Meter Redlined In The Minimum-Wage War

“There is never a good time to raise the minimum wage,” explained Joseph Sabia, an associate professor of economics at San Diego State University, to Capitol Hill staff members and reporters.

The briefing was co-sponsored by the Employment Policies Institute, whose anti-minimum wage campaign includes seven reports by Sabia, for which he’d received $180,000 from the organization that is in part funded by the fast-food industry, the New York Times reported. Each of these reports found that raising minimum wage did more harm than good, destroyed jobs, or didn’t benefit the poor.

The organization’s website features a section evocatively titled, “5 Things You Didn’t Know About the Minimum Wage.” It cites reports by Sabia and others to support its curious findings, among them: “For every 10 percent increase in the minimum wage, teen employment at small businesses is estimated to decrease by 4.6 to 9.0 percent.” Or, “Programs like the Earned Income Tax Credit are far better at helping low-income Americans” than raising wages.

The needle on my BS-o-meter instantly redlined.

But this is how the minimum wage war is being fought. At stake in Washington: raise it from $7.25 per hour to $10.10 per hour over the next two and a half years. Some states and cities are fighting their own battles over minimum wages or living wages.

If there were a shortage of labor at the low end of the skills scale, minimum wage laws would probably be superfluous. The labor market would take care of it. Companies would have to try harder to attract workers. And wages would go up.

Wishful thinking in the US. There is a scarcity of jobs and plenty of jobless people. Without a minimum wage, employers could drive wages down to ridiculous lows in their pursuit of happiness and still be able to hire desperate, starving job seekers.

There are differences. In a town in a rural area in the middle of the country where rents are cheap and commutes short, $7.25 per hour may allow a single adult to get by. In San Francisco, forget it. How about working in San Francisco and living in a cheaper area of the East Bay. So you’ve got to commute and get across the Bay, either by BART (our commuter rail system), by bus, or by personal vehicle. Either way, the commute is expensive for a minimum-wage earner. During rush hour, the bridge toll would eat up nearly an hour of the federal minimum wage. Plus gasoline for that old beater and the long drive to the cheaper area. You might spend a quarter of your wages per day just to get to your job. And then live off what, exactly? So forget that too.

San Francisco has implemented long ago a living wage, which was raised to $10.74 per hour on January 1. Other expensive cities in California, like San Jose, have their own living wages. California’s state minimum wage is $8.00 per hour and will increase to $9.00 on July 1. Are those minimum wage levels going to kill the economy in San Francisco, in San Jose, or in California? Nope. There are bigger issues that might kill the economy – like bubbles that implode, or the drought that is drying up the state. But not the minimum wage.

And the idea that raising the minimum wage to some kind of subsistence level would cost jobs, for teens or otherwise? Minimum wage jobs are in services, like fast-food restaurants, jobs that still cannot be outsourced to Bangladesh. Those jobs need to get done. People need to be hired to do them, even if wages would be higher.

In many competitive sectors where pricing is a big factor, such as fast-food restaurants, the low-cost producers win. It allows them to keep prices down and still make money while higher-cost competitors croak. Keeping payroll expenses down has developed into a fine art. Without a minimum wage law, and without other checks and balances, such as a shortage of labor, desperate, hungry people would work for next to nothing.

Minimum wage impacts all competitors the same way. Your competitors can still undercut your prices because they run a more efficient operation or have a better handle on other expenses or negotiate larger discounts with their suppliers, or they use even lousier ingredients and crummier substitutes or cheaper packaging, or serve even smaller quantities, or they’re willing to make less profit, but one thing they cannot do: undercut you with how little they pay their workers. In that respect, they’re all on a level playing field.

They might have to raise the price of their burrito by 4 cents, but every competitor will have the same problem. Raising the minimum wage won’t change the competitive balance.

And the risk of selling fewer burritos when the price goes up by 4 cents? Everyone has the same issue, but there’s a benefit: minimum wage earners will be making more money, and will have more money to spend, including on burritos – and they’ll spend every dime they get.

But it’s complicated. If the minimum wage goes up $1 per hour, what do you do with your employees whose wages you’ve raised last year by $1 from the old minimum wage? They learned things, got faster and more productive. Now they’d be back at minimum wage. You’d likely raise their wages to some extent to differentiate them from the new hires. In my many years in business, I’ve been through a number of minimum wage increases, and while we rarely employed people at minimum wage, we always ended up raising the whole wage scale. You don’t want to end up suddenly with a bunch of people on minimum wage, when before you had none. Every business goes through this – it’s not catastrophic.

But the logic of one minimum wage across the nation falls apart in face of the huge differences in the costs of living. You can’t compare Modesto, CA, with San Francisco. And what about that small town in Kansas, with low rents and short commutes – does it really have to have the same minimum wage as Dallas, TX, with much higher rents and endless commutes? America doesn’t consist of cookie-cutter towns. Every area has its own dynamics. And a compromise would be too low for high-cost areas and too high for low-cost areas.

I saved the best for last: the Employment Policies Institute’s claim above that “programs like the Earned Income Tax Credit are far better at helping low-income Americans” than higher wages – the debate having been framed in terms of reducing poverty in the US. According to this claim, a plethora of federal benefits, such as food stamps, should be used to compensate low-wage workers instead of raising their wages. And it works. Low-wage employees in just the fast-food industry receive nearly $7 billion per year in public assistance. This, in essence, is a way for the $200 billion-a-year industry to do something our corporate welfare queens excel at: shuffle off part of the costs of doing business to the hapless taxpayer. Read….Corporate Disease: Workers Are A Cost Not A Productive Resource

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