As Antony Davies of the Mercatus Center writes,
The minimum wage tends to be an emotionally charged topic because both sides believe that they are arguing (at least in part) in defense of the poor. Each side then naturally assumes that the other side must be arguing in opposition to the poor. To promote civil discussion, it is important to recognize that both sides are truly interested in helping the poor. Once we realize that we share this common purpose, we can work together to examine honestly the arguments and evidence for and against the minimum wage.
As with any public policy debate where there ostensibly is a moral high ground to be had, arguments tend to descend into cheap moralizing and righteous indignation at the opposing side. Of course, all that has the effect of accomplishing is further entrenchment coupled with all the usual accoutrements of a debate gone off the rails.
Let’s take a gander at some of the rather predictable consequences of hiking the minimum wage, even when done voluntarily and/or benevolently:
1. Wal-Mart recently decided to spend $1 billion to raise wages voluntarily. The result: “A Wal-Mart employee at a location near Houston…said her store had to cut more than 200 hours a week.” This is because most all businesses have a fixed percentage target to spend on labor. Just because wages increase does not mean the percentage target changes; as is the case with Wal-Mart’s wage hike: “Regional executives told store managers…to rein in expenses by cutting worker hours they’ve added beyond those allocated to them based on sales projections.” There is incredible downward pressure on managers to staff leanly in order to compensate for the added cost of labor. This pressure inevitably falls upon the shoulders of the workers themselves. And workers can always be squeezed to be more efficient with less time, as anyone who has ever worked can probably tell you.
And, although it probably goes with saying, an employee working 40 hours at $8 an hour is better off than an employee working 35 hours at $9 an hour. This suggests that any increase in the minimum wage, to be effective, would have to be coupled with a law preventing a reduction in work hours to actually lock in the benefits of an increase.
2. Generally, employees who stay with a company a certain amount of time see their wages hiked absent any regulation requiring them to do so. When the minimum wage is hiked, naturally these workers feel a bit peeved, as Wal-Mart is learning: “Some of the chain’s more senior employees have criticized the increase, saying it mostly benefited newer workers and that more experienced staff shouldn’t be making at or near what new hires are paid.” This leads to the rather predictable consequence that a hike in the minimum wage has a ripple effect upwards, where employees demand that all wages rise proportionally: “[M]inimum wage law[s] simply ‘set a higher floor for the unions to work from.'” Thus, it is fairly safe to disregard any and all analyses suggesting nominal price increases – the increased cost of labor will ripple through a given company, having a significant impact on the cost of goods/services. This is pretty uncontested, as even supporters of a hike recognize: “11 million workers whose wages are just above the new minimum would likely see a wage increase through ‘spillover’ effects, as employers adjust their internal wage ladders.” And speaking anecdotally, I can tell you that in my last union job, a big deal was made of the percentage wage above minimum that we earned – increase the minimum, and you will hear demands from unions like mine all over demanding a wage hike to keep that proportion the same.
Of course, there are also mischievous motives involved.
1. Big businesses agitate for a raise in the minimum wage whenever they see an opportunity to squash competitors thereby – they are in a better position to absorb the initial blow of increased costs while benefiting long term from increased sales due to fewer competitors in the market as a result of competitors’ inability to absorb the initial cost well. As one researcher at the Heritage Foundation aptly noted, “A higher minimum wage also forces higher costs on small businesses in small towns. Yes, those mom-and-pop stores are exactly the American institutions that Wal-Mart is competing against.” And, as another writer noted,
Many neighborhood business owners cannot afford these additional burdens, let alone an 80 percent hike in the minimum wage. These small businesses will be forced to cut staff hours or raise prices to noncompetitive levels. Jobs will be lost. For some, doors will permanently close.
2. Labor unions agitate for a raise in the minimum wage whenever they see a chance to hike the cost of non-union labor to match the union’s pay demands, thus driving out competition for business and contracts or driving workers into their arms, even though those same labor unions seek to be exempt from the very hikes they demanded. Without irony I assume, one such proponent of a hiked wage defended this demand for an exemption, stating, “This provision gives the parties the option, the freedom, to negotiate that agreement. And that is a good thing.” Truly “[t]his is hypocrisy at its worst.”
Let’s also take a look at the Department of Labor‘s glib and nearly citation-less “mythbuster” regarding “myths” about raising the minimum wage:
“Myth: Increasing the minimum wage is bad for businesses.
Not true: Academic research has shown that higher wages sharply reduce employee turnover which can reduce employment and training costs.”
I wonder if it dawned on the Department of Labor that this might be because higher wages vis-a-vis competitors with lower wages has that effect because employees are getting paid better than where they could elsewhere in the labor market, a key element as recognized by the fact that every one of these studies, which (I’m guessing) are the Labor Department’s “[a]cademic research,” shows business benefits when the wage is hire compared to other businesses. By hiking the wage, you remove an employee’s incentive to stay for the wages, because now they can go anywhere and get paid the same. If Applebee’s pays a line cook $12 while Chili’s only pays $10, the line cook at Applebee’s has an incentive to stick out unfavorable periods, ornery bosses, and the like; raise the wage so they both get paid the same, then the line cook can easily bounce from place to place, as jobs essentially become fungible.
As many critics of the minimum wage observe rather sensibly,
If raising the minimum wage were cost-free, why stop at $10 or $15 an hour? Why not go straight to $25 an hour, the average hourly wage? That might be considered fair, because no one would have to earn less than today’s average. The answer, of course, is because some people are displaced at any minimum wage. It is obvious to the general public that increasing the minimum wage to $25 an hour would displace workers. It is less obvious when amounts are smaller. But when the minimum wage is raised, employers hire higher-skilled people, or switch to different forms of technology such as placing orders through touch screens.
And, as observers note, the reason why hikes in the minimum wage don’t necessarily have catastrophic effects on the cost of goods is because “97 percent of American workers now make above the minimum wage.” One thing to be certain of, though, is that any such hikes in the wage will increase the number of people making more than it, not because employers will suddenly feel more generous, but because there will be fewer persons employed making minimum wage as companies cut such low-skilled, low-value workers to save costs.
Also, “[h]alf of minimum-wage workers are under 25, and 24 percent are teens.” Also, “50.4% are ages 16 to 24.” A majority are part-time workers (64%). Some supporters of the hike like to say things like “[t]he vast majority of employees who would benefit are adults in working families,” creating the impression that the “vast majority” are their families’ breadwinners. And yet in fact only “[a]bout one-quarter of…low-wage workers are parents….”
The best anecdotal evidence mustered by wage supporters tend to be from industries or specific businesses that are best equipped to absorb the increased cost of labor through policy changes and service maneuvering and that find themselves in areas with a “white-hot economy.” However, even those same positive appraisals come with guarded caveats like “[o]ther industries with minimum wage employees could have a tougher time as worker pay climbs.” Those industries include homeless shelter providers who even recognize that the hike…er, “economic justice that would be happening for our employees would be borne by our clients, who are extremely vulnerable people.”
And, of course, there is the painful reality that the minimum wage is not even the best way of alleviating poverty that we currently have available.