Wednesday, April 06, 2016

Besides benefitting pandering pols, why have a $15 minimum wage?

Commentary by James Shott

Democrat presidential candidate Bernie Sanders literally screamed through a bullhorn at a campaign event in support of raising the federal minimum wage from $7.25 an hour to $15. “I’ve been pleased to march and struggle with all workers in this country who are fighting for $15 an hour and a union,” he told the crowd. “We are the wealthiest country in the history of the world, people should not have to work for starvation wages.”

The City of Seattle, Washington last year raised its minimum wage to $15 to take effect this month, San Francisco and Los Angeles, California followed suit shortly thereafter, and last week the California State Legislature passed a measure to raise the state’s minimum wage in steps to $15 by 2022, and Governor Jerry Brown pledged to sign it.

Politicians frequently advocate for higher minimum wages, which attracts a lot of positive attention from low wage earners. Campaign speeches focus on how hard it is to live on minimum wage, as if a large proportion of the workforce earns the minimum and that large numbers earning at that level are trying to support a family, and all of these people really are being enslaved by greedy businesses. Facts, predictably, tell a different story.

At the end of 2014 the number of Americans 16 and older earning hourly wages was 77.2 million. Of those, just under 3 million earned the minimum wage, about 4 percent. Among all workers that year, hourly and salaried, those earning at or below the minimum was just 2 percent, and only 1.04 million minimum wage workers held full-time jobs. Of the entire full-time workforce, only 0.7 percent earned at or below the minimum wage.

Who are these 3 million minimum wage hourly workers? Nearly half – 48.2 percent – are between 16 and 24 years of age, and 2.6 percent are 65 or older. More than half work in food preparation and related “hospitality” industries, 31.4 percent are high school graduates, 23.1 percent did not earn the high school diploma, and only 9.1 percent have a college degree.

Most of them are second or third earners in their household; the average family income of a minimum-wage worker exceeds $50,000 a year. Furthermore, most minimum wage workers graduate to higher wages quickly as their skills and experience increase, usually getting a raise in less than a year.

People generally make minimum wage when they get an after-school job, or to help out while they are going to college. They make minimum wage for jobs that require little skill, and are often supplemented by tips. People make higher wages when they gain experience or hold jobs requiring higher levels of skill. Professionals and technically trained workers make more than fast food workers, checkout clerks and grocery baggers, as it should be.

Those who run businesses have to decide how much they can afford to pay for the different types of jobs in their business. Wages are based upon the importance of each job to the business, the experience and skill of individual workers, the number of people available for each job, and the overall cost of labor and other expenses, balanced by business income.

When government edicts artificially increase labor costs, businesses must offset the increase by cutting costs, increasing income, or a combination. Every minimum wage increase of $1 an hour costs a business about $2,500 per employee per year in wages and payroll costs. Other employees making a little more than the minimum will either require a raise, or deserve one, dramatically increasing the labor costs. Something has to change to offset that expense.

Businesses likely will reduce staff, particularly cutting positions where several workers have the same job. Maybe they employ robots or other machines to do certain tasks. Have you been to a restaurant that has a touch-screen device on each table? You can order and reorder some items and pay your bill with a machine.

There now is a robot burger maker that can turn out up to 360 burgers per hour. It can grind, stamp and grill made-to-order patties. It can cut and layer the lettuce, onions, pickles, tomatoes, etc., put them on a bun, and even wrap them up to go. This device would replace three full-time kitchen staff and ultimately cost the business less.

Higher labor costs mean that prices of many items will necessarily go up, some significantly. Even as minimum wage workers get more money, they and everyone else will see their cost of living increase, gobbling up a good bit of the higher wage.

Few Americans earning the minimum wage really “need” a higher wage to survive. Analyzing the coming increase in Alberta, Canada to $15 per hour, Robert P. Murphy and Charles Lammam of the Fraser Institute concluded, “In short, the minimum wage is neither an efficient nor effective strategy for helping the working poor.”

Minimum wage earners need to work their way to higher pay through education, training and gaining experience, like Americans have done for decades. A federally mandated minimum is, and always has been, a colossal mistake. It will reduce jobs among the very people it is supposed to help.

Cross-Posted from Observations

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