Wednesday, December 11, 2013

Minimum Wage

The minimum wage is back in the news, mostly, one supposes because Mr. Obama and the Democrats are desperate to get people talking about anything other than the Affordable Care Act.

The President gave a speech last week in which he devoted considerable space to the minimum wage, once again insisting that it be raised from $7.25 to $10.00 an hour. He failed, however, to make a persuasive case that this would benefit either the nation as a whole or the people it's ostensibly supposed to help most, the working poor.

Zachary Karabel at The Atlantic shares some thoughts:
In Obama’s speech, he stated that... “We all know the arguments that have been used against a higher minimum wage. Some say it actually hurts low-wage workers — businesses will be less likely to hire them. But there’s no solid evidence that a higher minimum wage costs jobs, and research shows it raises incomes for low-wage workers and boosts short-term economic growth.”
Well, I'm no economist but there are at least three things to be said about the President's claims: First, the evidence that it actually hurts low-wage workers is simply common sense. You can't raise the employer's cost of doing business without the employer economizing where he can. If it costs more to pay a marginally-needed employee then that individual is less likely to get hired, and marginally-needed employees already on the payroll are more likely to get laid off.

The reason why people are paid a minimum wage is because they're doing work anyone can do. Their work requires no particular talent or skill, and there's no shortage of people out there who can do the job, and will do, it for whatever the employer is willing to pay. It's typical big government intrusiveness to force employers to pay people more than what they're worth to the employer. If employees want to get paid more they should do what they can to increase their value to their employers.

Moreover, many, perhaps most, people working for minimum wage are young people who are only looking for some discretionary cash. If anyone is trying to support a family on a minimum wage they're almost certainly having their income augmented with food stamps, medicaid, earned income tax credits, reduced lunches, and other forms of assistance.

Mr. Obama also complained in his speech about accelerating income inequality in the United States, but aside from the fact that politicians never seem to explain exactly why this is bad (it's only bad if the people at the bottom are seeing their incomes decline or stagnate in absolute terms, but if that's the case the problem isn't inequality, it's income stagnation), it would be helpful if we were given some information about what's causing this.

For instance, what's the impact of the increasing number of single parent families on income disparity? Could one reason that some people are moving ahead and others are lagging behind, as Charles Murray argues in his book Coming Apart, be that those moving ahead are getting an education, not having children until they're married, staying married once they have children, avoiding drugs and alcohol, exhibiting a good work ethic, and in general making the kinds of decisions necessary to advance up the socio-economic scale, whereas those who are falling behind are practicing none or few of the requisite disciplines?

If so, I don't see how raising the minimum wage is going to help reverse the trend toward greater inequality. The only thing that'll do that is to reverse the forces that are tearing families apart in our culture.

Karabel reinforces the point with a couple of interesting statistics:
Nearly 20 states have a higher minimum wage than the federal rate. That means that the federal law has little effect in wide swaths of the country. What’s more, according to the Bureau of Labor Statistics, only 5 percent of all workers are paid at or less than the current minimum wage. Thus, increasing it will make precious little difference in most people’s lives.

Even an increase to $10, which is what Obama and others have proposed, would leave a family of two that depends on it with less than a living wage....The proposed increase would only marginally improve the lives of minimum wage earners.
Karabel tries to be even-handed and present both sides of the debate, but he struggles to come up with a convincing rejoinder to the objection I raised above that employers will reduce workers if they have to pay more for them:
The oft-repeated warning that businesses will hire fewer workers or reduce wages is also unclear. Yes, businesses have already begun to cut hours in order to avoid paying workers various benefits, including healthcare. Under a higher minimum wage, a significant number of companies would likely trim payrolls in order to maintain profits.

Yet such actions are both short-sighted and inimical to collective prosperity. They are short-sighted because you can’t build a vibrant service- and consumer-oriented society with fewer and fewer people earning enough income to pay for the goods and services they need and want. They are inimical to collective prosperity because a dynamic society depends on a compact, often unwritten, that the proverbial deck will not be so unevenly stacked.
He doesn't say that companies won't trim payrolls, because he knows they will, he just argues that for the good of the whole they shouldn't. This is hopelessly idealistic and naive. The fact is that most employers, especially small businesspersons, are so busy trying to make enough income to stay out of the red that they have little inclination to worry about whether hiring one or two more workers would be good for the "collective prosperity" of the nation a decade down the road.

There really are no good arguments for requiring employers to pay unskilled workers more than what they're worth to the employer, which is why calls to raise the minimum wage are usually couched in emotional appeals to do something for the underprivileged regardless of the effectiveness of what is done. If we really want to help the underprivileged, however, the best thing we can do for them is teach them the value of family, church, and school. It would take time to change the culture, but it's the surest road out of the underclass.