Minimum wage: what if they're right?

Protesters in Illinois, from www.progressillinois.com

The minimum wage bill failed to achieve the 60 votes needed to block a filibuster in the U.S. Senate last week. This was not a surprising result, and the discussion will continue in the political arena this election year with resolution unlikely.

There are arguments for and against an increase, either to the $10.10 an hour proposed by the Obama administration and congressional Democrats, or to a lower level as suggested by Senator Susan Collins (R-Maine). Advocates say the increase will help low-wage workers without having a negative impact on the economy, and this certainly is plausible. Those whose wages increase would surely spend most of the increase, which is exactly what the Larry Ellisons of the world are not doing with their mega-millions. That spending would stimulate those parts of the economy, possibly enough to create more job opportunities. Advocates can also note accurately that previous minimum wage increases have not had cataclysmic economic outcomes.

Benefits of a minimum wage increase illustrated, from www.wvpolicy.org

Opponents of the increase argue it will negatively affect businesses by raising their costs. The increased payroll is undeniable; the only question is whether the economic stimulus referenced above will benefit your specific business, and do so quickly enough that you don't spend too much time in the red. Too much time in the red means layoffs, or going out of business.

Minimum wage opponents play the 'small business card'... from eaglerising.com

I grasp both sides of the argument, and note that both sides claim economists and business people among their supporters. I can at least do the math: in a work week of about 40 hours, in a year about 50 weeks long, just multiply the minimum hourly wage by 2000 and you've got the approximate annual salary. The current minimum wage of $7.50 equates to an annual salary of $15,000. One of my students waitresses for $4.25 an hour, which would come to an annual rate of $8500, with tips assumed to make up the rest. Illinois' minimum wage of $8.75 comes to $17,500. The Democrats' bill would take it to $20,200. I made more than that in 1988.

However you feel about the economic or ethical ramifications of a minimum wage increase, we should take seriously the claims of both sides. Which means stopping to consider what it means if, as congressional Republicans claim, the proposal would strike a death blow to businesses. Almost every Republican who spoke in the Senate floor debate on the minimum wage April 30 had a tale to tell of a business that would be put under. For Pat Roberts (R-Kansas), it was a hardware store. For John Cornyn (R-Texas), it was a fast-food franchise:

Just ask Robert Mayfield from Austin, TX, where I live. Mr. Mayfield has been in business for 35 years now, and he is pretty successful. He also knows a thing or two about the consequences of rising labor costs. This is what we are talking about. For a business, this is the overhead. This is the labor costs they have to pay out of their income.

Mr. Mayfield wants Members of Congress to know that he strongly opposes this proposal because it will cost people jobs. Here is how he describes it:

What's most devastating about an increase in the minimum wage is that costs go up, and as a business owner, I have to raise prices--

So if we think we can pay somebody $10.10 an hour to work in a McDonalds and it won't have an impact on the cost of a Big Mac, well, we are living in a fantasy world. And that is what Mr. Mayfield says.

I have to raise prices, and sometimes the market [won't bear it]. In the end, jobs will be lost and service will suffer . . . The people in Congress wanting to pass a minimum wage bill don't know any more about how a business works than a hog knows about Sunday School. What makes it worse is Obamacare hanging over our heads. It's a job killer.

Minimum wage increase drives unemployment illustrated, from www.zerohedge.com

Let's assume for a moment that Cornyn, Roberts, et al. are right. They may well be, after all. Consider what that means: Across this nation, department stores, hardware stores, restaurants, grocery stores, pharmacies and convenience stores can only stay in business by (hiring mostly part-time) employees at very low wages. If these companies offered jobs that were secure, paid enough to raise a family, and offered health care and other benefits, they would go out of business. The economy would grind to a halt. And the rest of us would be paying much higher prices for groceries, clothes, health and beauty aids, toys, housewares and meals out.

Which means we'd only be able to afford some of what we get now. We in the middle class need to look each other in the eye and admit that it's very possible that our lifestyle depends on other people being badly paid.

There are a lot of people in this economy getting the short end of the stick. And if Cornyn is right, that must continue to be the case.The cockeyed optimist in me hopes that the Republicans are wrong, and that jonesing wages at the low end will not only help those workers but restore some much needed opportunity to the American economy. The handwringer in me says that if middle-class lifestyles are reliant on low-wage labor (and automation), we're all going to hell in a handbasket, except some of us faster than others. We cannot live together as a people if the system in which we operate requires that a substantial portion of the population gets the shaft so the rest of us can get by.

from oneutah.org

My earlier post on minimum wage rates: http://brucefnesmith.blogspot.com/2014/03/is-there-natural-minimum-wage.html

Binyamin Applebaum, "In Tepid Wage Growth, Signs of a Still Fragile Economy," New York Times, 5 May 2014, B3 and http://www.nytimes.com/2014/05/05/upshot/in-tepid-wage-growth-a-potent-sign-of-a-far-from-healthy-economy.html?rref=upshot

AND MORE, FROM HELPFUL READERS...

Jacob Smith, "Econ 101: The Minimum Wage," The Inked Economist, 19 May 2014, https://sites.google.com/site/theinkedeconomist/fresh-ink/econ101theminimumwage

University of Chicago Booth School of Business, "Minimum Wage," ICM Forum, 26 March 2013, http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_br0IEq5a9E77NMV

Allen Vander Meulen III, "Minimum?," The Here and the Hereafter, 22 May 2014, http://allenvandermeulen.org/2014/05/22/minimum/