Increasing minimum wage helps the poor, right?

It is a perfectly natural assumption – increasing minimum wage will help the poor.  Force businesses to pay their lower-skilled laborers more money and those workers will spend more, thereby helping the economy.  Right?  Well, not exactly.  While the self-proclaimed “compassionate” love to feel righteous (while standing on the shoulders of others), one needs to consider the implications of their actions.  Raising the minimum wage may give “the compassionate” a warm and fuzzy feeling, but the truth is government-meddling hurts those people that politicians proclaim to help.

If you take a look at the current situation, we already have an unemployment rate of 6.6% – if you look only at BLS numbers.  In reality, the rate etches a couple percentage points higher if you calculate based on a more realistic view of the labor market.  Roughly, over 10% of our population is collecting government-issued unemployment checks, and our response is to add more economic restraint to hiring these people?

The left leaning Economic Policy Institute claims raising the minimum wage would “lift about 5 million Americans out of poverty and that the US economy would grow by $22 billion thus creating 85,000 new jobs.” This claim was backed by one Huffington Post author, who wrote “the people on minimum wage cannot save their money therefore they would have to spend it and put it back into the economy which in turn would create new jobs.”

How simple life must be for this author.

Putting the arrant fallacy of the “inability to save” aside, basic logic dictates that for every government action, there is a requisite commercial reaction.  When the price of labor increases for a business, the business reacts by passing on that cost to the consumer.  Very few business executives willingly take a hit to their own pocket books because of the decisions of Washington D.C.

Profit to a business is like gasoline to a car.  Without profits, a business fails (along with their entire staff).  Everything is done for profit, and we need to not only understand this, but accept it.  And thus, it would seem to reason that if the government increases the labor cost to a business, the business will recuperate those costs with higher prices for their goods and services – or worse, cutting benefits or hours.

Understand that businesses will ultimately shove the costs associated with government mandates onto the consumer. In affect, this is a hidden tax included with “do good” politicians. Politicians will gladly play the role of savior in order to get a vote and remain in their cushy D.C. offices while making everyone feel like a victim.

The person who actually gets hurt by this activity is the guy at the bottom of the ladder who, at the whim of a politician, now has the next rung of the ladder raised up on him. Naturally, the reaction of many who are at the bottom will vote for bigger government and more benefits without looking at the implications or how these policies effect them. When people are made to believe they are a victim, they assume that they deserve more.  In truth, if everyone would take more responsibility for their actions (which I am starting to understand that no one does anymore), everyone would be a lot happier and a little more satisfied with the choices they have made.

Look at who is lobbying for minimum wage: Politicians and Labor unions. Politicians back it because it secures votes from unskilled laborers.  Labor unions back it simply because it reduces the competition in the labor market. For example, if we look at the Davis-Bacon Act, this was a law put in place because non-union blacks from Alabama were traveling to Long Island, New York and outbidding the union workers for jobs. With pressure from the local community, Representative Robert L. Bacon (R-N.Y.) pleaded to Congress to adopt a requirement for paying the local prevailing wages on public works projects for laborers and mechanics. It applies to “contractors and subcontractors performing on federally funded or assisted contracts in excess of $2,000 for the construction, alteration, or repair (including painting and decorating) of public buildings or public works”.  In other words, a way to eliminate the union’s competition.

Further, the minimum wage increases the barrier to entry for low skilled, inexperienced workers. For instance, take a young man still in high school. His parents encourage him to get a job to learn some responsibility. He applies at his local McDonalds but the minimum wage is set at $15 an hour. The manager knows the young man has no experience and has a lot of learning to do.  What benefit to the business does hiring an inexperienced worker at $15/hour provide?  Worse, regulations prevent the McDonalds store manager from negotiating a wage lower than the minimum – even if both parties agree to it.  Milton Friedman explained it very clearly: http://www.youtube.com/watch?v=ca8Z__o52sk

It takes a cold day in June before I agree with virtually anyone in Congress, but I did hear something sensible come out of Congressman Paul Ryan’s mouth during an interview with MSNBC: “Raising the minimum wage is just bad economics.. It costs jobs for people…We want people to climb the ladder and begin at entry level jobs, not have people stay at entry level jobs.”

Another fine point: government-mandated overpayment for low-skilled labor workers disincentivizes self-improvement.  If Johnny Smith makes $15/hour flipping burgers, why strive to become the next store manager?  The stress may not be worth the extra few dollars a week.

Instead of increasing the burden on businesses, our political “leaders” should instead encourage people at the bottom to work hard and strive to improve their lives.  Money does not make people happier about their job situation – I know this from personal experience. I was making close to $40 an hour not including benefits in Chicago as a laborer.  I was not happy doing it and my wife and I decided to focus on our education.  Ultimately, we left Chicago to fulfill our dreams.

Hate Low Wages? Blame Government

Minimum wage. Every year this seems to come up, and every year there’s a never-ending cry from every unskilled, low-wage worker that they need more money because of corporate exploitation. Then come in others who are more well off, who want to buy their guilt using money from other people, to take up the banner and proclaim loudly they are in support of a “living wage” and are, in fact, moral and not exploiting their fellow man.

The only problem: they are the root cause of low wages and people being trapped in unskilled, low-wage jobs. But, how can this be? Isn’t the problem of low wages the companies not paying people what they’re worth? No! The issue is these jobs shouldn’t exist to begin with.

What? Someone against jobs? I can almost hear the cries of people proclaiming “how dare you suggest a job isn’t worth doing!”  The cold, painful fact is that these jobs only exist because companies find them cheaper than automated alternatives right now. Why are they cheaper? Because the government subsidizes the living of the low-wage workers and therefore they can “live” off $7.25 an hour.

Consider this: you pay taxes to the government. The government then takes that money and uses it for the low income in various ways: SNAP, WIC, HUD, MedicAid, local food stamps, and net-income tax credits (getting money from the government without paying any income tax). All these add up to several thousand dollars a year. They get free/reduced cost doctors visits, free/reduced cost food, free/reduced cost housing, and checks in the mail.

Now, what does this have to do with Walmart or Target? Well if someone can be given $21,000 of services just by being alive, then they don’t need $15 an hour to earn a living, effective wage of $35,000 a year – they only need $7.25 or $8 an hour. Walmart and Target profit from the government subsidizing their labor and they get subsidized by the very people who complain how terrible Walmart and Target are!

Liberals, if you hate Walmart and want higher wages – stop voting for entitlements. Walmart, Coca-Cola, Kroger, and more lobby in support of SNAP because it makes their profits go up.

Here, right from the senate.gov itself: http://soprweb.senate.gov/index.cfm?event=getFilingDetails&filingID=0EC45790-9873-4B29-86FC-8671B7451F8A&filingTypeID=69

Or, if you prefer the distilled version, opensecrets.org does a great job summarizing it: http://www.opensecrets.org/news/2012/12/more-than-70-groups-in-play-over-sn.html

So you might finally ask: but, if these programs left, the jobs would vanish as machines would replace people in McDonalds, Walmart, and other places. What about them then? Well, people don’t starve and if given a choice between learning a skill and earning an income or starving in the street – people will do the former. A higher income that gives a better quality of life – we all aren’t tilling fields and picking cotton with our hands anymore, are we? No, we’re becoming doctors, engineers, carpenters, electricians, and more. All of these jobs create more wealth than unskilled labor jobs and raise the standard of living. People are not stupid, they are not incapable, and they are not victims like we’ve been led to believe by those who profit from their misery. People, however, will take the path of least resistance and as a species we have evolved to do the least effort for the most reward – that’s how we became the dominant species on the planet. It’s a successful strategy for survival.

We need to stop using these broad sweeping terms of political ideology and instead actually look at the root underlying causes. I could never blame someone who lives off welfare and food stamps – they’ve accepted a quality of life without having to lift a finger to do it. Same with those on unemployment – they COULD get a lower paying job than before, but they choose not to because a check comes in the mail for not doing anything each month. If it didn’t, I promise you’d see lot more temporarily employed people as they look for a better job.

We resist the temptation to spoil our children by providing them with everything that they want.  Instead, good parents instill work ethic into their children that makes our nation’s youth earn those things.  It is only strange that half the nation suddenly forgets those teachings when it comes to themselves.

Do minimum wage hikes spur unemployment?

President Barack Obama will announce in tonight’s State of the Union speech an increase in the minimum wage for federal workers on new contracts to $10.10, up from the current level of $7.25.  Putting the constitutionality of such a plan aside for a moment, what effect will an increase in the minimum wage have on American corporations?

Newton’s third law states for every action, there is an equal and opposite reaction.  Meaning, when a burden is placed upon a business, the business reacts to appropriately adjust to the added burden in an effort to maintain standard operating procedure relative to the past.

Economists from around the world have studied how companies respond to minimum wage increases.  Several studies, like this one from the London School of Economics, found a link between higher minimum wages and unemployment.  But other studies have produced a much more complex relationship at play.

Although it can happen, companies rarely roll over and accept lower profits due to the increase in minimum wage.  The laws of economics almost always dictate some kind of response to higher wages for primarily low-skilled workers.  How do companies respond to higher wage requirements?

Some businesses are forced to lay off workers or hike their prices.  Others cut back on hours for their current staff.  Many businesses will slash benefits instead of cutting jobs.

“The last time the minimum wage went up in two steps, we tried to not raise our menu prices, but the cost of food went up a lot,” lamented Blane Beschta, owner of a small diner in Cedar Rapids, Iowa.  “People are going to say that $3 for a cup of coffee is crazy, but that’s what it’s going to take if we need to raise wages to what is being proposed”.

One piece of research suggests that for every 10% increase in the minimum wage, prices increase about 4%, hardly the mark of smart policy.

New research indicates that higher minimum wages actually reduce employee turnover, which boosts productivity and reduces the costs related to training new employees and staff.  Even so, how do minimum wage hikes effect a business’ willingness to hire new employees?  The jury is still out, and the numbers are wildly unconvincing in either direction.

One thing is certain: many businesses do react to new wage requirements for workers.  We can only hope that a nearly $3 hike in wages for low-skilled labor jobs on federal government contracts does not increase the costs of already expensive and wasteful federal programs.

RESOURCES:

Losing the war on poverty

After trillions of spent dollars on our government’s supposed “War on Poverty”, what exactly does the United States have to show for it?  Millions still live in poverty (although the definition of “poverty” in the United States includes ownership of flat screen TVs, cable/satellite television service and high speed Internet) despite the enormous toll the war has had on the American people’s tax dollars.

Every year, the government spends more than a half-trillion dollars on programs designed to “end poverty”.  10s of trillions of dollars later, we find ourselves no better off than the year before.  Consider the following analysis by Michael Tanner of the Cato Institute, who wrote recently:

In 2012, the federal government spent $668 billion to fund 126 separate anti-poverty programs. State and local governments kicked in another $284 billion, bringing total anti-poverty spending to nearly $1 trillion. That amounts to $20,610 for every poor person in America, or $61,830 per poor family of three.

Spending on the major anti-poverty programs increased in 2013, pushing the total even higher.

Over, the last 50 years, the government spent more than $16 trillion to fight poverty.

Yet today, 15 percent of Americans still live in poverty. That’s scarcely better than the 19 percent living in poverty at the time of Johnson’s speech. Nearly 22 percent of children live in poverty today. In 1964, it was 23 percent.

How could we have spent so much and achieved so little?

The answer lies in government involvement.  Propping people up with government anti-poverty programs succeeds at keeping people in poverty with a consistent and dependable monthly check.  Consider this: what how motivation would you have to find a job if your unemployment benefits do not run out until 2015?

“Fewer than three percent of full-time workers are poor, compared to nearly 25 percent for those without a job. Even an entry level, minimum-wage job can be the first step on the road out of poverty,” Tanner wrote.

Will our government ever learn?  Better yet – will the American people make them learn?

Minimum wage kills jobs, reduces economic freedom

President Obama’s plan that would increase the federal minimum wage to $9 an hour would not only reduce the availability of jobs (especially in the minority population, Obama’s biggest support group), but it would prevent the freedom of workers to work jobs for less than the minimum wage even if both parties agree to the lower wage, wrote the Cato Institute’s James Dorn in an article published in U.S. News and World Report.

“If the prevailing market wage for low-skilled workers is $7.25 per hour and Congress mandates a minimum of $9 per hour, then workers who produce less than that will not be retained or hired,” he wrote.  In other words, basic economics.  As the government increases the minimum wage, businesses are necessarily forced to make a decision: reduce their workforce or increase prices.  Which would you prefer?

Both, of course, have negative consequences for our nation.  If businesses reduce their workforce, workers who previously had jobs will probably seek unemployment benefits, costing the American taxpayer money.  If companies increase prices, consumers will naturally spend less which, in turn, effects the cash flow of American businesses and may necessitate further layoffs and curtail innovation.  The minimum wage death spiral gets strengthened.

“The best way to stimulate the economy and create jobs is to increase economic growth by expanding free markets, not by increasing government power through a higher minimum wage.”

NYC minimum wage “walk out” falling on deaf ears

Today, several low-level employees at fast food restaurants like Burger King, McDonald’s and Taco Bell held a “walk out” in New York City to protest what they claim to be “unlivable” minimum wages.  Instead of $7.25, workers want more than double the salary to perform their jobs, $15 / hour.

Trouble is, that is not the way economies work.  The majority of minimum wage jobs are held by high school and college students who are learning the value of hard work and making a little cash along the way of building up their lives.  Minimum wage jobs are not supposed to be “livable”.  Flipping burgers for a living, one cannot reasonably expect to have the resources necessary to  support 7 kids, in the case of one of the NYC protesters.  No word yet on exactly why a low-level employee without an education felt financially responsible enough to have 7 children.

The disparity between salaries of low-skill laborers and the professional workforce exists for a reason.  If one could flip burgers for a living and support their family the same way a professional civil engineer could, what motive is there to succeed?  High salaries and stock options are earned, not provided.  With all of America’s problems, it remains one of the few nations in the world where the sky is the limit to anyone’s potential success.  Between charities and scholarships, the opportunity to succeed in this country is there.

One must make the choice: either do what it takes to acquire the skills necessary to make your employment with a business worth a higher salary, or stage a walk out and demand more money for the same job.