The new minimum wage law - more job opportunities destroyed by Democrats

I know it is almost sacrilegious to be against raising the minimum wage in America, but I am and here’s why:

Emotionally, it sounds great to be for higher pay for the lowest paid workers - that no one can raise a family on minimum wages - that those wealthy (and greedy) companies should be able to pay their lowliest workers more. It’s what politics runs on—pure emotion. A rational thought rarely comes from the lips of any politician. It’s always: "kissing babies" or "helping seniors" or "providing a living wage" or "fighting those greedy big companies" or a thousand other emotional appeals to class envy and class hatred.

As is almost always the case, the emotional appeal of political rhetoric is long on passion and short on reality, reason or logic. Of course, if there is enough political capital (or donations to the party) to be had to making exceptions that defy the logic of the main course, those exceptions will be made. The latest minimum is a classic example of both such a law and such an exception.

First of all, in September of 2005 I proposed a change in the minimum wage law to make it more suitable for a nation with regions of highly variable living costs. Read my article at the end of this BLOG. It applies even more today than then with the proposed change to $7.25 an hour. There is no question that this increase will move many more jobs from low economic areas to more affluent ones. More thousands will leave rural areas and move to cities as jobs worth less than $7.25 an hour will disappear. Many in depressed areas will simply have no jobs at all.

Now about the exception I mentioned: how is it that our compassionate legislators can specify an exception in Samoa where, for the benefit of tuna canneries, the minimum wage was set at $3.25 an hour, four dollars less than elsewhere in America? Could it be that the tuna canners donated a little money to the Democratic cause? Tell us about it Nancy? Why? How about making an exception to say, South Dakota, or Mississippi, or Indiana?

The cost of living as shown by household expenditures in the rural areas of these states is about $20,000, a fraction of the $70,000 that it is in Boston, for instance. Anyone with half an ounce of brains can see that disparity and understand the damage the "one size fits all" minimum wage does to those rural areas. Of course, who ever accused politicians of having more than half an ounce of brains. Lots of rhetoric, lots of brass, lots of crocodile tears, (how about it Teddy?) but brains???? Only in the "I want power and money" sense do any politicians have brain power. If you think about it, they usually create more problems than they solve. The latest minimum wage law is a classic example. It will do great damage to those in the poorest areas and nothing to those in the wealthiest. Read my proposal - the third post in this BLOG for a real answer that would make the minimum wage law an effective tool that would help rather than damage the poorer areas of our nation.

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Minimum Wage - popular political promise that delivers only job losses

Why the minimum wage, like price controls, will always work against the welfare of most workers.

This is in part a response to the remark from "anonymous" who sees the minimum wage as too low to provide for a family.

If you want to be paid far more than your job is worth, go to work for government. Every other job in a free society has a value dependent on what the job produces. When you place a floor or minimum on wages, all you do is eliminate all opportunities to work for less than that minimum. When any employer finds jobs that are costing more than they are producing, those jobs are changed, outsourced or eliminated one way or another. "Downsizing" is another result of this and is just another effort for employers to survive. Jobs are available as they offer employers opportunities for profit. Jobs that are not profitable to employers for any reason are nothing but employer paid welfare. They will be eliminated by the employer cutting the job or eventually going bankrupt.

Recently, politicians in one American city decided to raise the minimum wage in their city to $10.00 an hour. Fortunately, for the citizens of that city, the proposal was defeated. Current efforts of our national Congress to raise the federal minimum wage may be successful to the benefit of only those politicians who can boast of their efforts “to provide a living wage for all Americans.” That statement, like so many others from our politicians, waves a popular flag of helping the little guy (the almost totally ignorant poor) while actually slashing available jobs particularly for poor young people. All any minimum wage law does is eliminate all job opportunities whose benefits to an employer are lower than that minimum.

It sounds so appealing to say, “I’m raising your pay by raising the minimum wage.” or, “Every American who wants to work should be paid a living wage.” or, “How can anyone raise a family on a minimum wage?” Politicians promise much which eager voters eat up, but what they deliver is often exactly the opposite of what they promise. With the federal minimum wage now far below the previous percentage of the average wage, Americans are enjoying a booming economy with entry level jobs mostly starting above minimum wage standards. This means there are jobs available for part time or young and student workers where they can supplement family incomes and gain work experience. These are the jobs that disappear when the minimum wage is raised. Examples are legion and have even decimated the economies of entire cities and areas.

What the politicians who want to raise the minimum wage should really be saying is, “I’m eliminating all chances for employment that pays less than the minimum wage.” or, “All jobs that are worth less than the new minimum wage to employers are hereby eliminated.” or, “The higher I can raise the minimum wage the more job opportunities will be eliminated.” or, “If your children are willing to supplement the family income by working for less than the minimum wage, I won’t let them have a job.” Of course to do so would be political suicide so this truth is never uttered by politicians.

Price controls, like minimum wages get occasional mileage from politicians, often with disasterous results including shortages, black markets with high prices and lack of sufficient production. Price controls, like other government restrictions, often drive producers out of business by making it unprofitable. A recent, almost tragic example is the shortage of flue vaccine last winter. Price restrictions placed by our government (and I believe several others) on flue vaccines combined with the possibilities of costly litigation, drove all American producers out of the vaccine business. The potential profits were so small and the risks so great as to make manufacture of the vaccine unatractive. Then, when a problem arose with one of the few remaining foreign suppliers, a huge and dangerous shortage was immediately created. Canada is now experiencing shortages of many critical drugs and have modified their price controls to allow some degree of flexibility. Negotiated prices are fine and while they may create some of the same problems as price controls, those problems are usually limited and frequently, the negotiated price is supplemented by the agency doing the negotiations. In this instance, someone still pays for the higher price, government (us) or the agency.

How the Minimum Wage must be changed

If we must have a minimum wage, it certainly needs some tweaking

The present federal minimum wage is a one-size-fits-all law that is extremely unfair to both prosperous locales and poor ones. In prosperous areas, there is no chance that anyone will work for the current minimum wage so it is practically useless. In lower income areas it costs jobs that some people might like to have. A single person in an area where it costs $1,200 a month for bare essentials would need at least, $8.00 per hour to survive. A young person living with parents in rural Wyoming might be able to get by at the same comfort level for $350 a month or $2.20 per hour and get by famously for $5.00 per hour. Yet those jobs below $5.75 per hour do not exist. They have either been replaced by automation or shipped overseas because of government edict. That young man living at home must head for a big city where there are jobs available at and above the minimum wage and he won’t be able to live nearly as well as he could have out in the country for much less money.

This prevents many industries from expanding into depressed areas where they are needed most. It also prevents industries from being successful in areas where high local wages combined with high living costs, make investment unprofitable. This economic pressure steals workers from low cost areas further depressing their economies. An example of what this standard national minimum wage does to many rural areas occurred shortly after the last increase in the minimum wage. I have been unable to find the source of the information so the example will be representative of what actually happened.

The ABC company manufactured widgets at their plant in a small Kansas town about seventy miles from Kansas City. They employed about three thousand assemblers, mostly women who hand assembled the widgets from parts manufactured elsewhere and shipped to the plant. These assemblers were housewives, teenagers and people who otherwise would not have a job for various reasons. Many worked part time. They came mostly from three small nearby towns and the surrounding rural area. They were all paid the minimum wage, five dollars an hour. At this pay rate the widgets cost $2.50 each out the door. Because the cost of living in the area was quite low, five dollars an hour provided a living for some and augmented pay earned by other members of the household or family. The employees were happy to have their jobs and there was always a waiting list of job applicants.

When the national minimum wage was raised to $5.75 per hour, the factory owners were faced with a troubling decision. This change immediately raised their cost for a widget to $2.88, eight cents more than their previous selling price. They had a competitor in Chicago who used an automated system to make the exact same widgets for $2.75 each and were selling them for $3.10. Their costs were not affected by the increase in the minimum wage. After they were denied an exception asked for in a letter signed by almost all of the employees, the owners realized that even if they raised their price to $3.10 and could maintain their customer base there would not be enough gross profit to cover their expenses and they would lose money. There was no way they could raise their price to $3.26, the price needed to maintain profitable operation of the plant.

The closing of the plant cost 3000 people their jobs and took more than half a million dollars out of the local economy each month. This was an economic disaster for the community and for many people who lived there. All the local businesses took a major hit with many having to close their doors putting still more people out of work. Sure, that money merely moved to Chicago so the overall economy never missed a beat. Unfortunately, the proponents of the one-size-fits-all minimum wage never consider that there are those in our nation who would be well served to have a job paying less than the federal minimum.

There are many areas in our country where the cost of living is several times what it is in other areas. Try to live in New York City for what it costs to live in rural Indiana for example. Yet the minimum wage is the same everywhere. Why not adjust the minimum wage to account for the cost of living variations due to location? Exemptions from the minimum wage could also be granted certain age groups or depressed localities. This could be done on a city by city, cost of living basis.

The cost of living standard based on a national average of 100 is as low as 70 in some rural areas and as high as 200 in New York City and 179 in Boston. Interestingly, Buffalo, NY is 86.7. Rural Indiana areas go as low as 76, rural Mississippi and South Dakota as low as 70. These are actually for small towns in rural areas. Using another basis, household expenditures are as high as $70,000 in Boston and as low as $20,000 in rural South Dakota. It is interesting to note that in spite of the high cost of living, New York City households spend only about $45,000 per year, much less than in Boston.

Should the minimum wage be pegged to the cost of living index at $5.75 for the national average of 100 the result would be as follows. In New York City the minimum wage might be set at $11.50 per hour while in rural Nevada it might be as low as $4.00 per hour. I feel certain you could find more workers at $4.00 per hour in rural Nevada than for $11.50 per hour in New York City, at least on a percentage basis. In Boston the minimum wage would go up to $9.45 per hour and In Indianapolis it would be near the national average at $5.88 per hour. This might even tempt businesses who are shipping jobs overseas to invest in depressed areas with low minimum wages. Liberals and unions would have a fit, but lots of young people who would like to work near their rural homes might stay there and work if they knew they could earn enough for a basic lifestyle.

If the minimum wage were pegged to the average household expenditures the story would be quite different. In New York City the minimum wage might be set at $6.50 per hour while in rural Areas around the country it might be as low as $3.00 per hour. I feel certain you could find more workers at $3.00 per hour in rural areas than for $6.50 per hour in New York City, at least on a percentage basis. In Boston the minimum wage would go up to $10.65 per hour and In Indianapolis it would be higher than NYC at $7.45 per hour.

Perhaps a mix of the two in some proportion would be a better basis for a variable minimum wage. Certainly, the minimum wage is a detriment to a large portion of the nation. Where it is too high it helps drive business and industry away. Where it is too low it helps create a labor shortage.

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