The effects of government-established minimum wages were strongly debated in the 1930s and that continues today. The practice was finally accepted as law in 1938. Data for alleged studies are often presented supporting all positions, which affirmatively proves one adage. Figures do not lie, but liars do figure.
A principle that cannot be disputed is that each employee to retain his job must contribute as much to the company output as he is paid; his value is determined after deducting expenses of facility, supplies, utilities, everyone else’s labor, and a reasonable profit (perhaps as low as 2 percent to 5 percent).
A deviation from the above principle is that the employer does not anticipate an inexperienced employee matching productivity initially, but expects the employee will grow into the level required; that normally occurs. Many entry-level employees grow into managerial positions in a few years.
President Barack Obama has proposed that the minimum wage be increased from the current $7.25 to $10.10, a 27.5 percent increase.
The effects are broad. Employees too far below the necessary productivity level or who have proved they will never reach it become unemployed. Many labor contracts for mid-level wages will increase because the contracts are written to be proportional to the minimum wage. Material costs will be increased because suppliers and transporters are all equally affected.
Retail prices will be increased significantly. Demand, particularly for items of elastic demand, will decrease; as demand falls, supply must be decreased, resulting in more unemployment. An argument persists that if the increase (27.5 percent) in pay exceeds the percentage of people becoming unemployed, the economy gains. Those unemployed teenagers and recent college grads with zero pay may not believe that.
When a three-step minimum pay increase was first applied in July 2007 from $5.15, black teenage unemployment was 30 percent (national 5 percent). Two years later, after the final increase to $7.25, black teenagers unemployment was 50 percent (national was 10 percent). Ball State University estimated 500,000 jobs were eliminated by that increase.
During a 12-year period after World War II, the minimum wage was not increased and inflation rendered it meaningless. Entry-level jobs were then affordable and black teenage unemployment decreased significantly. In subsequent years the minimum was raised repeatedly and the black teenage unemployment was multiplied. Switzerland and Singapore, which have never enacted minimum wage, maintain close to 3 percent unemployment consistently.
An interesting report explains that the minimum wage laws have become ineffective for three reasons because they are developed in terms of low-wage workers instead of low-wage families. Examples of ineffectiveness include: (1) the student flipping hamburgers on his summer break from college whose father is high income, (2) the worker who has an hourly wage above minimum, but is limited to part-time work, and (3) the unemployed.
When first implemented in 1939, 85 percent of low-wage workers were members of low-wage families. Today only 17 percent of the recipients are in poor families and 34 percent are in families that earn three times the poverty line.
Increasing the minimum to $15, as Seattle has done and San Francisco is considering, will exacerbate that differential. Raising the minimum wage has no, repeat no, significant value, to 83 percent of American families, but causes higher unemployment, particularly among young people, and contributes to nationwide increases in cost of living.
Politicians claim they “feel the workers’ pain,” but their solution provides political gain, not help.
Earl Heal is a Vacaville resident and member of The Right Stuff Committee, a committee of the Solano County Republican Party. Reach him at email@example.com.