An Analysis - Raising The Federal Minimum Wage

"If I was a House Republican, I'd be concerned about opposing anything that polled at 63%.  And for Democrats, the poll suggests this is an issue you don't want to compromise on."  - Damon Silvers, director of policy for the AFL-CIO labor federation following the results of a WSJ/NBC News poll that showed 63% of Americans support a raise in the federal minimum wage to $10.10 an hour from $7.25 an hour.

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So in listing the pitiful pandering issue of raising the federal minimum wage as one of his top priorities BO thinks he is once again on the right political side of a soft ball topic to cherry pick that he figures will help Democrats in the 2014 midterm elections.  As seen above unions are counting on Democrats making the raising of the federal minimum wage rate an issue & they are hoping for Republican opposition.  BO includes the wage boost as part of his program to narrow economic inequality – of course this method is intended to bring the top earners down & not help low wage earners as described hereinafter.

This post is dedicated to those candidates who know there is more to returning prosperity to America than just promising higher starting wages to the people on the lowest rung of the economic ladder.  As usual Democrats take the side seemingly most appealing to the masses with no sense of responsibility for their actions.  As always Democrats are interested only in increasing government dependence of the poverty ridden portion of the population that votes Democrat – not increasing entry-level jobs & self sufficiency.

Background statistics - there were 3.6 million hourly workers who made the $7.25 an hour federal minimum wage or less in 2012 or 4.7% of hourly workers with half of such workers being between 16 & 24 years old – an obvious entry level age.  Only about 10% of those earning the federal minimum wage are heads of households living in poverty.  The federal minimum wage began in 1938 as part of FDR's New Deal & was originally set @ 25 cents per hour – had it tracked inflation since then it would be $4.07 an hour today.  It has been raised 30 times with the peak inflation-adjusted rate being in 1968.  The majority of people who earn the federal minimum wage work in food preparation & other service related areas.

Common sense tells us that having the government force the raising of entry level hourly wage rates does not help a business & will not provide an incentive for employers to hire – otherwise why wouldn't businesses do this of their own volition? 

Last week the Congressional Budget Office (CBO) issued a report that showed there is a trade off when the federal minimum wage is raised from the current $7.25 per hour level to $10.10 per hour (over a three year period with inflation indexing thereafter) – namely, 500,000 people find their jobs eliminated (with a two thirds chance the jobs lost will be from slight up to 1,000,000) but 900,000 people, out of 45 million who are projected to be living in poverty in 2016, are calculated to move out of poverty according to the report.  Altogether, 16.5 million workers would see their earnings rise with a $10.10 hourly wage mandate with 8.9 million of them being people who currently earn over $9.00 an hour.  Accordingly the CBO report clearly shows that minimum wage hikes involve costs & benefits to society that must be evaluated to determine the positive effect, if any, of the government's forced wage increase on low-skilled workers & the negative effect, if any, it has on the general economy.

The people most hurt by raising the federal minimum wage are the most unskilled workers @ the low end of the $7.25 to $10.10 an hour range – people who do not add more to a businesses' revenue than to costs when making $10.10 an hour.  Women are twice as likely to fall into this category than men.  Teenagers are especially priced out of the labor market by increases in the minimum wage more than any other group - with the biggest cost being their lost opportunity to gain experience & training that they will need later in life.  In essence the people who carry their weight @ $7.25 an hour but not $10.10 an hour will be the ones who lose their jobs.

 

But there are other costs to society in raising the federal minimum wage that are not as obvious.

 

Many unions, especially in the service, retail and hospitality industries, peg their baseline wages to the federal minimum wage even when no union member makes the minimum - the average employed private-sector union member earns $22 an hour according to the Bureau of Labor Statistics. 

Union labor contracts use several methods to trigger increases for their members such as including a formula setting baseline union wages as a percentage above the state or federal minimum wage, mandating a flat wage premium above the minimum wage, or reopening wage talks following any minimum wage hikes.  In addition union contracts restrict a company's ability to hire low-skill workers who would gladly work for less than union wages if only to gain experience.  All of this adds to the cost of society not readily thought of when politicians want to raise the federal minimum wage under the pretense to help the poor – in many cases it is also payback to unions.  These pay increases tied to the federal minimum wage are in addition to other wage increases in the union contracts.

Every non-union business & portions of businesses that are non-union face many of the same increases in labor cost principles described for unions above – best illustrated in the following example that shows how relative pay positions are maintained.  People who currently make $12 an hour will be demoralized if they do not get a commensurate increase above someone whose wages increase from $7.25 an hour for doing the most menial jobs to $10.10 an hour for doing the same job.  It does not take much imagination to see the entire pay scale going up with many people losing their jobs in this example as well as other hiring being impeded.  Also, these additional labor costs will produce a commensurate degree of inflation that will eat away @ whatever benefit raising the lowest wage rates ever accomplished.

But possibly the most deceptive part of the Democrat's minimum wage charade is revealed by the fact reported by CBO that only 19% of the benefits of raising the minimum wage go to families earning below the poverty level while 29% goes to families earning more than three times the poverty level meaning that the money businesses save from the people who lose their jobs pays for the higher wages of people who are not poor.  Democrats love to automatically assume the high moral ground by saying Republicans & Tea Partiers abandon the morality issue in not caring about low income people who do not make a living wage – but every bit of evidence I am aware of makes me not trust Democrats & government with morality.

All of the above problems accentuate the incentives businesses have to automate instead of hire.  This is especially true with the Fed keeping interest rates near zero or even negative in real terms while the government artificially raises labor costs in the faux name of helping the poor.

The primary beneficiaries of raising the minimum wage are those who remain employed & have their wages increased in accordance with the new minimum.  As with any price floor set above the market determined price an artificially set minimum wage will lead to a surplus of labor – i.e., unemployment.  With so few of the people making the minimum wage being heads of households it becomes obvious that federal minimum wage legislation is poorly targeted begging the question – why do we perpetuate this problem?

In the face of an issue that polls @ 63% favorable do Republicans & Tea Party candidates want to take on not raising the federal minimum wage?  Democrats propose handing low income people a raise of as much as $2.85 an hour while centrist Republicans may put up an argument that jobs will be lost as a result of the mandatory wage increase.  Who do you think will win that debate?

This is where a candidate for office who envisions the market as the template for all activity comes in.  Such a candidate does not place politics over policy & has no use for government's artificial manipulation of issues including raising the federal minimum wage.  To be successful regarding this issue the candidate will himself understand the above trade off between lost jobs & higher incomes & can explain it so the affected people understand it also.  Reaching such affected people begins the unmasking of politicians who also are beneficiaries of raising the minimum wage in that they get reelected @ least in part by people who think they benefit from the increase – but never really see their lives improve.  The candidate will possess the ability to explain that raising the minimum wage consists not just of looking @ the immediate but @ the longer effects of the policy including how the policy effects the entire economy & why the recipients of the current wage increase will fare no better this time than people did from past increases.  In essence the candidate will ask if they want to break the mold & participate in a free market economy like America was founded upon?

The preceding paragraph describes a tall order but a tall order is required, not just on the minimum wage issue, but literally on every issue in order to turn the country around from the destructive path it is on.  Do we see anyone who can lead the country in such a turn around?  But we know that BO, MO, Hillary, Pelosi, & Reid are more than capable – they are masters -  of continuing the country on the socialist/communist slide.

Not raising the federal minimum wage is the ideal issue to reach people to produce a needed mindset change.  Start by showing low income people that training & education are their tickets to a better life with potential earnings far above the minimum wage levels.  Learn English so a prospective employer can be communicated with.  These are two common sense measures that will pay quick dividends. 

The right mentor can show the smartest (& better yet those with average intelligence & perseverance to accomplish something) of the current low income workers that they don't have to run – they can walk past the untrained competition in ascending the job market ladder.  Employers are screaming for properly trained help in far too many fields & can't find them.

The stakes are high because the people that need to be reached are part of "Romney's 47%" - people who are dependent on government, believe they are victims entitled to government handouts, pay no income tax, & look @ a raise in the minimum raise as a blessing.  These people believe they have a dreadful future with nothing @ stake - they are more interested in looking for their next meal than wanting an economics lesson – & that is the challenge.  Without reaching some of them a little @ a time we have an electoral problem that many have started to see – namely, only Democrats will win presidential elections for the rest of our lifetimes.

Ayn Rand said she wrote about men like John Galt & Howard Roark because she knew they existed.  Well, we obviously need them now & they can't appear soon enough to suit me.