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Minimum wage scales do not balance

heal column sig

By
From page A8 | August 04, 2014 |

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 healearlniki@att.net.

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Discussion | 24 comments

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  • 2realAugust 04, 2014 - 6:04 am

    I wish i could of made 10.10 a hour while flippin burgers growin up.

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  • JBDragonAugust 04, 2014 - 1:27 pm

    I know right! I was making $3.35 a hour at Jack in the Box. Talking about a zero skill, a job a monkey could pretty much do. $10+ is crazy! These are temp jobs. Not a job to raise a family on. When you reach the point whee labor costs are to much, guess what, you bring in the Robots! Anyone here gone to YouTube and did a reach for Roboburger? It exists. That thing is primitive is what can be done now. Throw in 4-5 of these things to replace almost everyone except those couple people that's left to keep the place clean get the the crazy pay. Everyone else will be unemployed. Or around 90% of the people working at that fast food place will be out of a job. It's coming, only a matter of time. If people are going to get $10-$15 for a zero skill job, my pay should then shoot up.. You know besides killing a lot of jobs, you know how else gets hurt? Say the pay jumps to $10 a hour, all those making $11 or so above that are now screwed. Why? Think about it. Costs of everything will now shoot up. These peoples pay didn't go up, yet things are costing much more. If anything, you can look at it as a pay cut.

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  • rlw895August 04, 2014 - 1:34 pm

    $3.35/hr was what year? What would that be now if adjusted for inflation?

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  • rlw895August 04, 2014 - 6:29 pm

    I looked it up. $3.35 was the minimum wage in 1981. Adjusted for inflation, that's $8.86 in 2014.

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  • rlw895August 04, 2014 - 11:24 pm

    So, JBD, California has simply raised the minimum wage to be what it was when you were earning it in 1981, while the feds have sat on their hands. Does that take the wind out of your sails?

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  • JimboAugust 04, 2014 - 6:42 pm

    I wish the cost of living today was around when you grew up as well, to match the what would be excess wages for the time.

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  • Mike KirchubelAugust 04, 2014 - 6:09 am

    What a joke. Earl, you ascribe rising U.S. unemployment figures from 2007 to 2009 to an increase in minimum wage? I guess the world's economists missed that one... they were too busy concentrating on the biggest economic collapse since the Great Depression. But you caught it, you and your fringe-right propaganda factories. Good one. You never cease to amaze.

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  • Jealousy DetectorAugust 04, 2014 - 7:12 am

    Another pile of kirchubel.

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  • rlw895August 04, 2014 - 11:26 pm

    JD: You mean factually incorrect? What's your view of the facts?

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  • JagAugust 04, 2014 - 9:26 am

    Hey Mike how come you dodge the question from Mr. Practical yesterday? I don’t know about all of those numbers but I do know if San Francisco goes to $15 I have 150 coworkers out of a job as we will move them to our Los Angeles facility that is a fact.

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  • JimboAugust 04, 2014 - 11:00 pm

    Jag sounds like he works for a company whose executives are so greedy they would rather fire people than lower their excessive over entitlement salaries.

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  • JagAugust 05, 2014 - 10:01 am

    UMMM Yeah, I am not sure what you are talking about because the question was not about Mr. Practical it was posed by Mr. Practical about his friend a restaurant owner. But thanks for playing.

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  • BobAugust 04, 2014 - 6:13 am

    The pain felt is the money that it costs for the f..ls in Washington DC that have their own retirement plan, borrow from my retirement plan and never repays, borrow from your own plan. If the pay scale is raised the F..ls can't raise taxes, oops I mean fees

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  • Larry WAugust 04, 2014 - 6:35 am

    Entry level jobs should be just that. It should not be a "livable" wage. These jobs should be there to provide the employer a needed service and be there to get the employee some experience working. The skills learned can then be used for future employment. This system worked very well for us and it was very helpful.

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  • CD BrooksAugust 04, 2014 - 7:28 am

    Larry W, exactly! It was never meant to be a "living wage." American Kids now have difficulty getting these jobs because adults (that may or may not even belong here) have taken all of them. And why wouldn't they? $8-$10 an hour is very inviting for some folks that want to supplement their income maybe saving for a nice vacation or buying a new car. I'd like to see it lowered or at least frozen. Maybe when we clean up the immigration mess and send those folks home things will get better? And possibly on a more local issue, after getting rid of the vagrants and freeloaders we'll have a better situation?

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  • TJ BairdAugust 04, 2014 - 7:44 am

    Larry and CD, I agree with both of you. In my youth, I never (nor did most of my friends) started a job at the entry level pay that I didn't move up the wage scale based on working hard. I didn't need the government creating pay increases for me, I did that myself. Do I wish that I could have started some of those jobs earning more? Certainly, but where I started didn't determine where I finished. Each of those less than desirable jobs motivated me to find one that was better and would pay me more, usually based on what I had learned from the previous one.

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  • CD BrooksAugust 04, 2014 - 8:20 am

    I know this is an impossible quest, but I believe that $5 an hour should be the prevailing wage. In fact, I think it should be reduced, happening right now today. It is a very simple formula. When the minimum wage goes up, so does everything else. So what's the point, where and when does it stop?

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  • rlw895August 04, 2014 - 2:52 pm

    Let's talk about a federal minimum wage only. How many think there should be one?

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  • CD BrooksAugust 04, 2014 - 3:18 pm

    rlw895, okay I'll go with a federal minimum wage. As long as it doesn't exceed $5 an hour.

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  • JagAugust 04, 2014 - 3:25 pm

    agree with CD $5

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  • CD BrooksAugust 04, 2014 - 3:48 pm

    Okay, I'm a dummy. I didn't know there was a federal minimum wage or If I did, I forgot! The federal minimum wage is $7.25 an hour. Arkansas is $6.25 GA and WY is $5.15. AL, LA, MS, SC and TN have no minimum wage requirements. States have the latitude to make adjustments one way or the other. If everyone doesn’t have to meet the minimum requirement, why bother?

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  • rlw895August 04, 2014 - 6:17 pm

    CD: States can set their own minimum wage, but if it's lower than the federal, the federal applies.

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  • Mr. PracticalAugust 04, 2014 - 5:41 pm

    rlw, no Federal minimum wage. It should be left to the states as dictated by the 10th Amendment.

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  • rlw895August 04, 2014 - 6:22 pm

    Mr.P: The 10th was superseded by the 14th. Now don't go all legal on us to avoid the question. If you must, assume it's legal. Should there be a federal minimum?

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