National Minimum Wage

Apparently the Congress really wants to raise the minimum wage, and the President seems to be leaning toward agreement on the idea.

I suppose I should not get very excited about it because California, where I live, already has a minimum wage that is about the same as the amount that Congress is going to propose. Having owned a small business for a few years, I am opposed to the concept of a minimum wage, and I object to increasing it. Among the reasons are:

• The minimum wage is supposed to help the poorest of our working bread winners make ends meet, but it does not. Surveys have shown that only a small portion of the minimum wage earners are sole providers for a family. In fact, the majority of minimum wage positions are between-term or part-time jobs for students, or are held by people who are supplementing the income of a primary wage earner.
• The cost to an employer is much more than the amount of the minimum wage increase. Other payroll-related expenses increase as well. Among these are the company contributions to Social Security and Medicare and the cost of workmen's compensation insurance. That means that a $1.00 per hour increase can cost the employer $1.50 per hour. For a small business, this can be a crippling increase in labor cost.
• Raising the minimum wage is inflationary. When an employer increases the rate for minimum wage personnel, it has to provide corresponding increases to the more senior employees and to first-line supervisors. Otherwise, the entry-level person or the summer hire is earning as much as, or more than,his supervisor. Large companies simply raise their prices (and take profit on the increase) to compensate for the added payroll expenses. Many of these companies provide the very products and services that the minimum wage earners are likely to consume--groceries, fast food, clothing, etc. Thus, the employee's small increase in take-home pay is mostly chewed up by an increase in living expenses. It's like trying to fly by pulling up on your own bootstraps.
• Everyone else also pays for the inflation caused by the minimum wage increase. So it is not the government, or the large corporation, that funds the minimum wage increase. Every citizen does. In effect, each and every one of us takes a small pay cut in order to pay people more money even though they have not increased their productivity. The minimum wage is not merely inflationary; it is forced charity in a very thin disguise.
• This forced charity is regressive. Middle and lower income people pay a much larger percentage of their salary for the products and services of minimum wage employees than the wealthiest 1% do.
• Increasing the minimum wage reduces the number of available jobs. Smaller businesses are not be able to raise their prices because they will become non-competitive and lose sales. Instead, they reduce their work forces. Or, worse yet, they just go out of business altogether. Larger companies may try to relocate their production facility to another country.

Unfortunately, life is tough, and not always fair. Many people in our country look to the Government to solve their personal problems. And many politicians ignore the facts and cater to this tendency.

If someone really wants to earn more money, he can do so. He may have to give up cigarettes and alcohol and cancel his cell phone account. And he may have to go to school to gain more knowledge and skills. Many have done these kinds of things, and increased their income by doing so. When they do, their increase in income is generated by an increase in productivity, and it is not inflationary.

We should remember, too, that in our country the average CEO makes 369 times the money that the average worker makes. Assume that the CEO of a company with 1,000 employees receives $10,000,000 a year. If he reduces his salary so that he would have to struggle along on a paltry $2,000,000 per year, and divide the remaining $8,000,000 of his salary among his employees, he could give them all about a $2.90 per hour pay increase. At least this charity would be paid by someone who can afford it more easily than you or I.

No politician who seeks campaign contributions would ever suggest that corporate executives are overpaid. How popular would a politician be if he proposed a national maximum wage? Of course, a national maximum wage makes neither good economic sense nor good political sense. The minimum wage makes political sense (it brings in more votes without alienating wealthy campaign contributors), but it does not make good economic sense.