It is the gospel for many cash-strapped college students who are fed a steady diet of economic theory and social engineering by professors that aren’t economists and tend to lean toward socialism: Raising the minimum wage raises everyone’s lot in life.
There is little doubt that increased earnings tied to increased productivity lifts people’s economic lot.
But the wholesale raising of the floor — especially in large steps — backfires at worst and ultimately ends up as a wash at best.
Appearing on the California ballot in November is a measure to increase the state minimum wage from $10 an hour to $15 an hour over a five-year period. It would be ratcheted up $1 a year until it reaches $15 in 2021. That’s a 50 percent increase in 5 years.
It took 9 years from 1997 to 2006 for the minimum wage to double to $10.
It took 21 years from 1976 to 1997 for the minimum wage to double to $5.
It took 16 years from 1947 to 1963 for the minimum wage to almost double to $1.25.
No one in their right mind is going to argue that $10 an hour is a head of household wage for California.
But minimum wage jobs were never designed to be much more than that — jobs that are minimal in terms of skill and experience needed. They are designed as either entry level jobs or as second or third jobs in households.
That’s not saying the floor doesn’t have to be jacked up every once in a while as a counter to the ravages of inflation. That said, since the 1950s one of the biggest ravager of minimum wage buying power has been income taxes. There was a time when minimum wage jobs weren’t taxed. But the growing demand that the government expand entitlements required more taxes. The failure of any state and the federal government to reduce income tax liability in proportion to gains in the inflation rate is arguably one of the biggest killers of the buying power of a dollar given the average American pays 18 percent annually in income taxes.
This hurts not just those making minimum wage but anyone else who is struggling to cover basic necessities.
Again, this isn’t an argument against raising the minimum wage from time-to-time. It is though, an argument against any drastic and relatively quick implementation of significant minimum wage hikes.
Back to those idealistic college students tired of eating Top Ramen while Tweeting on their $700 smartphones about the outrageous price of tuition and claiming it’s not fair they’re burden with loans to “buy” an education with their ultimate intent to be rolling in the money.
The Obama administration is in the process of overhauling this nation’s overtime-pay rules. There are several litmus tests to determine if one is exempt from overtime pay. The biggest, though, is the threshold that triggers OT after 40 hours a week. It has been at $23,660 a year since 2006. The Labor Department is proposing jumping it to $50,440.
If that idealistic college student goes to a University of California campus they will take a $39 million hit. That’s what the UC system has said it will cost them to meet the proposed regulation change to avoid paying overtime to thousands of postdoctoral scholars, librarians and specialists.
The UC system can absorb this basically in two ways — cutting back services to students or raising tuition. That means those on the bottom — struggling students — are going to be hit the hardest.
How this applies to raising the minimum age aggressively is simple. Any arbitrary rule aimed at increasing compensation carries a cost. And that cost is borne disproportionately by those who have the least amount of money.
Real earning power increases come from climbing the ladder.
There are countless reasons why someone may languish at a job flipping burgers for $10 an hour while others are making $20 an hour.
That said, it you arbitrarily change the wage of all burger flippers to $20 an hour, ultimately those who made $20 and hour will see their wages go to $40 an hour without much effort on their part.
It happens due to the relative value of skills they bring to an employer. Unless government decrees that wages will never increase for non-minimum wage jobs, those holding only minimum wage jobs will never catch up.
That’s because the price of practically everything is driven primarily by wages. Just like with a rule that raises the labor cost of a university, private enterprise only has two choices — cut expenses or raise prices.
Given is the No. 1 cost of every private sector business is labor, the only way to cut costs is to find ways to cut jobs. It explains why fast food concerns are working to find ways to eliminate the need for humans to take your orders. Increasing prices helps feed inflation and wage demand pressures from those who have above minimum wage jobs. In a strong economy, those with additional skills and experience valued by firms will seek employment elsewhere for better pay unless the firm they work for finds a way to get them to stay put which means increasing compensation.
That raises the price of goods and ultimately everything else effectively putting the minimum wage earner making $15 an hour into a hole that may be far worse than the one they were when the mimum wage was $10.
It is why the best way to increase your earnings is to develop marketable skills and then pound the pavement or — better yet — do something scary like launching your own business.
This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA. He can be contacted at firstname.lastname@example.org or 209.249.3519.