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I wish this was a problem that could have a solution. The solution is what alishainwonderland is doing. Responsible business owners proving to their employees a livable wage.
A careful review of the evidence reveals no economic consensus that increasing the minimum-wage leads to increased employment. In fact, mandating a large minimum-wage increase would have a devastating effect on Kentucky’s economy and the employment opportunities of its young people:
• Larger increases in the minimum-wage cause more job losses than do smaller minimum-wage hikes. Certainly, Louisville Metro council’s decision to forgo a larger hike in the minimum-wage by raising it to $9 over several years will have a less-harmful effect on
employment than a steep immediate increase to $10.10 would.
• While raising the federal minimum-wage hurts employment generally, it particularly harms it in Kentucky. Past minimum-wage hikes have resulted in an additional .2 percentage-point increase in Kentucky’s unemployment rate relative to the rest of the U.S. The states that see the largest escalation in unemployment from a minimum-wage increase are those with the lowest wages, which is why Kentucky’s unemployment rate spikes relative to the U.S. rate when the federal minimum-wage is increased.
This, it is alleged, will provide more income to support spending and stimulate the economy. If it works that well, why not make the minimum $50? This would provide someone working 2,000 hours a year an income of $100,000, eliminating poverty and stimulating the economy. Obviously, $50/hour would be detrimental to employment as is $7/hour, it’s just a matter of degree.
The minimum wage is a major anti-jobs policy. Ten states have announced an increase in their minimum wage effective January 1, mostly because their legislation requires an adjustment to the Consumer Price Index inflation measure. Some political jurisdictions take it further, San Francisco has a minimum over $10 per hour and the state of Washington is above $9 on average. Supporters hail this as a victory for “fairness” and a benefit for poor people. This, it is alleged, will provide more income to support spending and stimulate the economy. If it works that well, why not make the minimum $50? This would provide someone working 2,000 hours a year an income of $100,000, eliminating poverty and stimulating the economy. Obviously, $50/hour would be detrimental to employment as is $7/hour, it’s just a matter of degree.
The President of the Greater New York Chamber of Commerce suggested that the higher labor cost could be offset by eliminating waste in other aspects of the business. Really? So employers are wasting money that they could eliminate and add to the bottom line but they chose not to, to earn less than they could if waste was eliminated. But, with a higher minimum wage they will suddenly eliminate that waste to cover higher labor costs, adding nothing to the bottom line? This is the kind of absurd thinking that leads to bad policy.
As a poverty program, raising the minimum wage is like killing flies with a shotgun, not very well targeted. About 60% of the officially poor don’t work, so the only thing raising the minimum wage does for them is to make it harder for them to get a job if they ever decide they want one. Workers must bring at least as much value to the firm as they are paid or the firm will fail and all jobs will be lost (no GM bailouts are available to our 6 million small employers that employ half of our private sector workforce). Raising the minimum wage raises the hurdle a worker must cross to justify being hired.
It is estimated that less than 15% of the total increase in wages resulting from an increase in the minimum will go to people below the poverty line and less than a third of those receiving the minimum wage are families below the poverty line. Most minimum wage workers are from above median income families. So, most of the people benefiting from the minimum wage are not the intended targets of the “anti-poverty” aspect of raising the minimum wage.
As a jobs program, raising the minimum wage is a real loser. Congress raised the minimum wage 10.6% in July, 2009 (know of anyone else getting a raise then?). In the ensuring 6 months, nearly 600,000 teen jobs disappeared, even with nearly 4% growth in the economy, this compared to a loss of 250,000 jobs in the first half of the year as GDP growth declined by 4% Why? When you raise the price of anything, people take less of it, including labor. The unemployment rate for teens remains unacceptably high. Workers of all ages that are relatively unskilled are adversely impacted by this policy.
Consider a community based pizza parlor selling 100 pies a day for 360 days at $10 each. Total revenue is $360,000. It employs 10 minimum wage workers earning $7 per hour, working 2000 hours a year, making labor costs $140,000. Assume rent, utilities, equipment, depreciation, insurance, supplies, licenses, and food costs come to $170,000 per year, leaving a profit of $50,000 for the owner and his/her family. Raising the minimum wage $1 would raise labor costs by $20,000 (paying more for the same amount of labor) and reduce profit to $30,000. The owner must either move into a smaller house or raise prices, which reduces the demand for pizza, resulting in the loss of a worker. So, the full increase in the wage cost of an increase in the minimum wage comes out of the pockets of customers or the owner’s family, and the one person who loses a job. There was no net gain in income to increase spending in the community served as every dollar the minimum wage workers received came out of someone else’s pocket in the community.