Our president has shrewdly crafted another conflict that casts conservative lawmakers as greedy, mean spirited obstructionists, by resurrecting another rise in the minimum wage as a solution to our economic woes.
In his State of the Union speech President Obama proposed raising the federal minimum wage to $9 per hour, presumably to uplift those in poverty to a living wage. This perennial fiscal fad that re-emerges every few years like a vampire from the crypt is designed to appeal to the many on the lower economic rung who believe they would benefit from the President’s largess. Unfortunately, there is broad agreement among economists that raising the minimum wage in today’s economy would suck much of the life blood out of our job market and ultimately cause more harm to the poor than good, especially to those most in need, the unemployed. How is this so?
First, no one should expect to live for long on a minimum wage. A low basic wage will work only for entry-level employees or part-time workers such as students or retirees who are seeking supplemental income. Seasoned and willing workers are soon paid more than the minimum because employers know that paying a higher wage to keep good workers is cheaper than hiring and training their replacements paid at a lower wage.
Second, employers wishing to hire even minimum wage workers, must pay much more than just the wage. What many people overlook is that because of social security, workers compensation, medical insurance, and other costs, employers have to pay somewhere between 20 percent and 50 percent in benefits on top of every dollar they pay to the employee. That means that every new $9 hire would actually cost the employer between $10.80 and $13.50 per hour. Small business employers with very limited revenues that have traditionally provided most jobs must determine if the productive value of each new hire in such tough economic times is at least equal to the total cost borne by their business. Making the right determination is particularly important because if the employer guesses wrong and then has to lay the employee off, the state government will punish the employer through unemployment taxation penalties.
Third, since it was first established in 1938 at 25 cents per hour the ever-escalating minimum wage has inflicted an accumulating amount of economic and social damage on our country. Along with other government regulations the minimum wage has helped in recent decades to drive low-skill jobs off shore, send formerly permanent jobs to temporary agencies, and incentivized business owners to increasingly eradicate jobs in favor of automation. It has also fueled inflation by escalating the cost of virtually every common product or service, while simultaneously depriving the youth, particularly minority youth, of the buying power of the wage and even more importantly the opportunity to learn skills while placing a foot on the first rung of the employment ladder.
Although it is true that thoughtful arguments supporting some benefits of the minimum wage can be made, these usually rest on the assumptions of a healthy economy and nearly full employment, not on the reality that today States like California have black unemployment of about 20% and teen unemployment of 36%. Instead of demanding an increase in the minimum wage enforced uniformly upon every community in the US, our President should call for the immediate suspension of the federal minimum wage for new hires until national unemployment goes down below, perhaps, 6%. This would allow states to tailor minimum wages rules to meet current employment conditions and the needs of their own localities as they once were allowed to do.
Unfortunately, if the president’s political machinations result in an increase in the minimum wage, collateral consequences will be inflicted upon all of us, but most of all upon those most in need of help, the unskilled who are earnestly seeking the job that is no longer there.
U.S. Rack, Madera