The drive for a hike in the minimum wage to $10.10 an hour, or sometimes as much as $15 an hour, lives on as a cause du jour for some Americans, defying the laws of business economics. Workers, labor unions, and politicians, support the wage hike through lobbying efforts, civil demonstrations, and labor strikes often paid for by labor unions.
These folks reject out of hand the fact that every job has an actual calculable value in the business it is a part of that takes into account the benefit to the business’s entire operation, the qualifications of the worker, and other real factors, unlike what drives the minimum wage hike: it is a nice idea, makes people feel good, helps unions raise members’ wages, and garners support for politicians.
The National Center for Policy Analysis (NCPA) notes that minimum wage hike proponents support an increase because it would save the government money in social support services, since those whose wages rise will be less likely to seek and need welfare benefits.
Research by the Economic Policy Institute shows that increasing the minimum wage to $10.10 an hour would reduce welfare spending by $7.6 billion, but that is only 3.8 percent of the total of $200 billion in welfare spending that taxpayers fund. Not that saving seven or eight billion is a bad idea.
However, in its efforts to give to people things they should earn through personal effort, the left focuses on the benefits of their ideas, and ignores the negative consequences.
This erroneous reasoning is responsible for a long and growing list of government programs the negatives of which far outweigh their benefits. The Community Reinvestment Act combined with repealing Glass-Steagall, and Operation Fast and Furious spring quickly to mind.
Addressing the negative impact of a wage hike, NCPA cites research by Ben Gitis of the American Action Forum asserting that raising the minimum wage will result in lost jobs. His analysis shows that 2.2 million new jobs would not be created, totaling a stunning $19.8 billion in lost earnings, if the minimum wage is increased.
The truth is that the number of minimum wage earners who really need a living wage is tiny. Only about 3.6 million workers, or 2.5 percent of all workers, earn the minimum wage, according to Bureau of Labor Statistics, and teenagers living at home comprise 31 percent of that group. And 55 percent are 25 years old, or younger, mostly inexperienced and just learning skills. Therefore, of all workers over 25, only 1.1 percent would be affected by a wage hike that would cost 2.2 million future jobs.
Combine that small number with the fact that well over half of workers earning less than $9.50 an hour are the second or third earner in a family, two-thirds of whom earn more than $50,000 a year, and that critical number shrinks even more.
As a percentage of hourly workers those earning the minimum wage has shrunk dramatically since 1980, when they comprised 15 percent of that group. Today, that portion is just 4.7 percent. And more than half of them are part-timers working less than 30 hours a week.
If you earn the minimum wage it certainly is appealing to imagine getting an increase in your wage of about half. But a hike in the minimum wage has to have solid economics-based reasons behind it, or it shouldn’t happen. The economic reality is that the numbers just don’t add up to support a $10.10 an hour minimum wage.
This wildly popular idea evolves from not understanding business and basic economics. How, in a country with education spending on average of $11,000 per student per year, can there be so many who have no idea about things like supply and demand, and how high costs, high taxes, excessive regulations raise prices and decrease sales.
The United States has just lost the top spot in the world in productivity to China, the first time since Ulysses S. Grant was president that America has not led the world.
A friend who ran a company doing business in several foreign countries was talking about his company’s expansion into China a few years ago. At the time China had 1.35 billion people, he said: 100 million communists, and 1.25 billion capitalists.
While Communist China embraces capitalist principles and becomes the most productive nation, the United States, once the bastion of free enterprise, increasingly embraces socialistic mechanisms and lost the lead in productivity for the first time in more than 130 years.
Most likely few of the proponents have ever had to make a payroll or keep a business viable in the face challenges like competition, high taxes and onerous regulations.
Foolish ideas like raising the minimum wage without sound reason helps explain our loss to China and our overall anemic economy.