THE WAGES OF EVIL??

We have had the minimum wage since the late ‘30s. You would think the question of whether or not a government-imposed minimum wage is good for all concerned would be settled but alas, no. So, what Congress will be voting for is politics, not economics.

The core of the minimum wage issue is what we believe the purpose of a business to be, and, on that point, I think we have agreement. Both Conservatives and Liberals hopefully understand that the purpose of a business is to make money by providing a product or service that is wanted/needed by society. Where the two philosophies differ is about what to do with that money when it enters the business.

 The Liberal believes the income should be divided based upon fairness and equality. What the worker gets paid is determined by what the worker needs to live the “American Dream.”

 The free market Conservative believes the income is divided up according to the worker’s value, productivity, skill, and importance to the organization.   What the worker gets paid is generally determined by comparable jobs in the industry/location.                                    

As a Conservative I have issues with the minimum wage, (or as the Liberals call it the “Living Wage”).

Liberal philosophy is based on the two-legged stool of fairness and equality. In order to provide fairness and equality where it does not naturally exist (which is everywhere), it must be unnaturally implemented, and who better to unnaturally implement something than the government. (This is where the term “income redistribution” fits in nicely.) A mandatory minimum wage is really “income redistribution” within a business.

The concept of minimum wage begins to fall apart when we realize the government can force a worker to be paid a certain amount, but it cannot force a worker to be more productive to justify that increased wage, or the business owner to hire any additional workers at all. The government also cannot insure the business will not “let go” those folks not producing what the government says they are worth. Businesses need to get more value for each additional dollar spent but with the forced minimum wage they may actually be forced to get less value for the dollar.

 If I, as a business owner, have a job that I believe warrants a $5.00 per hour wage and the government tells me I have to pay that worker $9.00, I have choices. I could take that money from my pocket or the pocket of my share owners (who have taken all of the business risks), or I could not fill that job (notice today’s high unemployment among youth, minorities and other unskilled workers). I could increase the workload or cut back hours of those now receiving the additional income (Thus increasing the wages but decreasing actual income) or invest in more technology to accomplish the task (farm machinery, ATMs, the self check out at food stores), or I could relocate outside that particular government’s jurisdiction. None of theses choices are driven by good business policy but by outside government intervention.

 The higher the price of something, the less is bought. If a business has to hire someone at an “inflated” wage, it will look for the most skilled worker available, leaving the young and older unskilled workers out in the cold (If the government forced the price of a BMW and a Yugo to be the same, how many people would choose the Yugo?)  A high minimum wage reduces the number of low skilled and young people in the workforce thus creating more unemployment and increases the much publicized middle class income inequality by reducing the income of the already lower income folks. The bigger organizations can better handle a higher wage base so they will continue to do well. While the small business owner struggles, the big time CEO thrives, thus increasing the much maligned income disparity.

(I assume the government will also have to pay the new, higher wage. Guess from whom  they will get the additional money?)

I have read articles written by proponents of raising the already highest in the nation minimum wage in Santa Fe, New Mexico stating that an even higher wage is necessary because of the high cost of living in the city. I wonder if those folks ever stop to think of what might be a significant factor in causing the city’s high cost of living in the first place. A business may move into a community with a high minimum wage, but that business moved in spite of the higher wage, not because of it.   We have to ask, “Who benefits from an artificially high minimum wage?” Not the business, not the customer and therefore not the community as a whole.  It is argued that a higher minimum wage puts more money into the community. That is an interesting thought, but that money comes from someplace and that someplace now doesn’t have it to spend.—a problem with redistribution.
 Among those who do work and earn the minimum wage, researchers have found that 60% are secondary income earners and live in households currently above the poverty line. So is an increase in minimum wage really reducing poverty?

Is it possible that a higher minimum wage could be a contributing factor to today’s high drop out rate?  Dropping out of school or not updating skills are choices that have consequences. Could an artificially high minimum wage be perceived as a positive consequence thus encouraging dropping out?

This raising of the minimum wage will not only affect those entry level folks who are the direct recipients, but since I’m sure there is currently a wage differential between levels in an organization and that differential will continue, so everybody up the line gets a raise whether they are worth the extra money or not.  Business owners then have a pay structure not based on any specific value to the organization but on an arbitrary number picked out by a governmental entity that doesn’t know or understand the effected business. I heard a union member on TV say that he thought the minimum wage should be $30 per hour. I thought, “why not?” As long as we seem to be picking numbers out of a hat, $30 has as little relevance to reality as $9.00.

 Also, what if a new worker chooses to work for less pay in order to learn the business, but because of a high minimum wage the boss will not hire him? That, in itself, can’t be good for the economy as a whole.

Employer and employee are really a buyer/seller arrangement. How many other buyer/seller arrangements do we have where the government can tell the seller what he must sell his “thing” for, and what the buyer must buy it for?

Now, of course, the Conservative model is not without its faults. Business management can get greedy and underpay its employees, but in a truly free market that underpaid person would leave the low paying job, and the business which pays the best for a particular skill will get the best workers and ultimately be the most successful, thus requiring Scrooge, if he wants to remain in business, to compete.

On the question of do we want a higher minimum wage, Congress may soon be voting for a Liberal philosophy, i.e. the money in an organization should be distributed as evenly as possible, or a Conservative philosophy, i.e. everybody in an organization is not an equal contributor. I feel for a business to be a successful and productive element of society, the business must be allowed to make its own decision on its most significant expense, wages.

A vote for increasing the minimum wage feels good, it feels like the right thing to do, but I think we all know just because something feels good doesn’t make it right.