LEGISLATING HIGHER WAGES: WINNERS AND LOSERS

Michael Kurth Wednesday, January 8, 2014 0
LEGISLATING HIGHER WAGES: WINNERS AND LOSERS

Fifty years ago, I was working after school as a “soda jerk” in a drug store when the minimum wage was increased to $1.25 an hour. I was pretty happy about it at the time, because it meant a raise for me, I didn’t have to work any harder, and I didn’t lose my job.

My brother wasn’t quite as lucky.  He was working at a gas station as a “pump jockey.” His job was to rush out when a customer pulled up, pump gas into their tank, wash their windshield, and, if they asked, check the oil level and the pressure in their tires.

He lost his job. Nothing personal.  He was a good pump jockey, but that job disappeared because gas stations could no longer afford to pay teenagers to pump gas; customers would now have to do that themselves.  My job would also disappear, but not before I got my draft notice and had to report for duty in the Army.

Legislating higher wages may sound like a good idea, and some people may gain from it, but there are always many more losers than winners. Politicians pass legislation like minimum wage laws because the winners are immediate and obvious, while the losses take longer to develop, and can often be blamed on other things like stingy employers and technology.

President Obama recently announced his support for a Democrat initiative to raise the federal minimum wage by 40 percent, increasing it from $7.25 an hour to $10.10 an hour.

If this were a legitimate way of making us more prosperous, why are the Democrats being so stingy? It’s Christmas time; why not raise the minimum wage to $25 an hour or even $50 an hour? Because raising it by that amount would make the losses more immediate and too obvious. It’s the old “sweep the dust under the rug” strategy: You can hide a little bit of dirt under the rug, but you can’t hide all the junk in your attic there. It would be too obvious.

Who wins with the raising of minimum wage? According to the Bureau of Labor Statistics, only 1.6 million workers are currently paid $7.25 an hour, and there are about 20 million more who make less than $10 and hour and will therefore see some increase in the paychecks, if they keep them. Most of these low-wage workers are young (half are under 24), have only a high school education or less, and work in fast food, retailing, and service industries such as hotels and motels. It is estimated that 77 percent of Latinos fall into this category.  They will be affected more than any other ethnic group, but their celebrations are likely to be cut short as the long-term effects set in.

It would be great for low-wage workers if their employers could raise their prices to cover their higher payroll, because that would mean consumers would pick up the tab for the higher wages, and their employers wouldn’t eliminate their jobs. Just one problem with this: Who shops at Walmart and eats at McDonald’s?  Low-wage workers. So what these workers pick up in their paychecks, they may give back at the cash register.

But I suspect many employers will be unable to pass the cost of these higher paychecks on to their customers, especially considering the higher labor costs they will face once Obamacare kicks in. Instead, they will stop offering extra services (like my brother’s job washing windows and checking oil at a gas station), or they will replace low-skilled workers with machinery and technology, like self-checkout scanners in supermarkets. And many retailers may skip the whole labor-intensive, brick-and-mortar business to go online, where there are no store clerks and cash registers.

There will also be geographic effects. Back in 1964, when I graduated from high school, the city I grew up in, Saginaw, Mich., lost three major factories. It was a big blow. Where did those factories go? Down south to the Carolinas, Georgia and Louisiana. We were not happy about that. It was unfair; Southern wages were too low, and the workers didn’t belong to labor unions. But it was great for the South, which had lagged behind the rest of the nation economically ever since the Civil War (i.e., “The War Between the States”). Up North, we loved the federal minimum wage, because it was the same throughout the nation, even though the cost of living was much lower in the South.

California has already passed legislation raising its minimum wage to $10 an hour by 2016. It is expensive to live on the left coast. Same thing with the Northeast; the cost of living in New York is 40-percent higher than in Louisiana. The present minimum wage of $7.25 an hour in Louisiana is equivalent to just $5.08 an hour in New York. Raising it to $10.10 in Louisiana would be the same as making it $14.42 in New York.

Southern congressmen should stand as a block and insist that if the Democrats want to index the minimum wage to the Consumer Price Index, as they are proposing, that they also adjust it to the cost of living in each state. Northern congressmen will squeal like stuck pigs at that suggestion, because the negative effects of a $15-an-hour minimum wage would be too high to hide under the rug.

Ever wonder why labor unions push so hard to raise the minimum wage, when none of their workers will be effected by it? Are they just trying to be kind to the “scabs‚” who don’t belong to unions and under-bid them for work? Hmm. Could it be that they are trying to price their competition out of the market with “kindness?” As for the 77 percent of Latinos who earn less than $10 an hour and don’t belong to labor unions, what do you think will happen to them down the road?  So long, “pump jockey;” so long, “soda jerk.”