AN increase in the minimum wage is almost certain to top the agenda in the fall elections as Democratic strategists grasp at straws to try to reclaim a majority in at least one of the legislative houses. Yet for all their political posturing, the politicians will ignore the cost of a minimum wage increase, knowing full well that their "smoke and mirrors" will probably be enough to fool most of the people THIS time.
Even the "advertised" minimum wage is itself deceptive. The minimum wage is not $5.15 an hour, but is actually over $5.50 an hour. This is because of the employer's match on social security, as well as the fact that employers must carry basic benefits for even their lowest paid employees in the form of Worker's Compensation and Unemployment Insurance. The $5.50 figure only factors in the SS match.
Every $1 an hour increase, then, is actually a $1.06 increase, plus the added cost of the aforementioned insurance plans.
When an employer hires an employee, there is always significant cost associated with it. They often must advertise the position, and then there's the cost of paperwork, the manpower cost of interviewing, the cost of training, and depending on the job, uniform and other costs can factor in. Assuming that a poor employee is gone in two weeks (a remarkably short time, unless the employee is a complete deadbeat), the employer is out $440 in salary ($5.50 x 80), plus the other mentioned costs. Every $1.06 increase means a 20% increase in costs, plus an increase in the costs of the higher level employees needed to hire and train because of the devalued work dollar. The 20% increase may not seem like much, but it is potentially disastrous to mom and pop stores, who are already disadvantaged in higher costs per square foot of rentals, higher wholesale costs of their product due to smaller bulk purchases, and higher overhead on insurance because their risk increases as their pool of employees decreases. And while it won't be as disastrous to larger employers, the increase in the bottom line will mean either they will have to hire fewer employees or increase prices to cover higher costs of operation. Either way, the consumer loses through poorer customer service and/or less purchasing power.
The net effect of this is that it will increase unemployment and devalue the dollar. The marginally employable can forget about a job, and those poised above minimum wage will find themselves struggling harder to make ends meet, as employers are unlikely to be able to institute an across the board 20% wage hike, meaning they will need to sacrifice wage increases for higher level employees, who are proven employees with known value, to accomodate mandated wage increases for lower level employees without known value.
The critic of my position will point out that minimum wage increases have been implemented in various states and communities without negatively impacting employment and purchasing power. As far as I know, they may be right (I'm no economist), but they are speaking of microeconomies within the national macroeconomy. The "base rate" still presupposes an economy where minimum level employment is worth $5.50 an hour, whether the local rate is $6.50, $7.50 or beyond. All they have done is created a cost of living adjustment within their states or communities, and it is right for them to be able to do so, just as it is right for businesses to choose whether or not to operate in these higher cost economies. Their job market remains stable because businesses have decided the burden of higher operating costs is offset by the benefits that are brought in by higher skilled workers, better location, or any number of factors. And, in fact, regional minimum wage increases benefit the rest of the nation by creating a labor cost disparity that is a factor for businesses in relocating their operations. A business looking to open a factory might forego Silicon Valley, where there is greater access to distribution, and head to north Texas, where the wages are lower, the property values are lower, and the increased cost of distribution is offset by these tangible benefits. Put simply, regional minimum wage increases prevent jobs from congregating in certain parts of the country while poverty increases in others.
That brings me to my next point. While minimum wage is certainly not an adequate income for most people in the Washington, DC metro area, it is certainly a livable one, albeit barely, in many regions. And even in DC, I still remain convinced that people can make it on the salaries that DC area businesses offer. After all, if there's an epidemic of starvation and death in our ghettoes, it has certainly escaped the attention of the nightly news.
On top of all that is the inescapable fact that most Americans are not making the minimum wage. Only a very small percent, and most of those minimum wage employees are precisely who minimum wage employees were meant to be: young people entering the work force with few job skills. Most of us, frankly, have better jobs.
As the 2006 elections near, minimum wage increases will be a "hot button" issue, and it is our choise whether or not to fall into the propaganda trap many have set for us. While minimum wage increases may appear to be a good thing, they are, in fact, merely a placebo that will not even begin to address the problems of poverty in America.