Another Great Debate–Minimum Wage

The content of this blog post is my own opinion. Deal with it. I did not look at all the minutia of data available, I merely have extracted what other reporters from reputable sources have discerned from the content. Sorry. I am not an academic who spends hours, days, months, years of his life gathering and deciphering data. Again, deal with it.

I was drawn into a discussion on Facebook. And, by drawn in, I mean I read a couple of comments on a thread and interjected my own opinions. This particular thread caught my eye when a friend commented:

The 1% have shown that they view minimum wage increases as an opportunity to raise prices even more than minimum wage went up, and take an even bigger chunk out of the middle class. 

 What we need to do is tax the hell out of the 1% and eliminate ALL of their write-offs so we can have the government provide us with a happy, healthy society, if they don’t want to provide us with one.

That sort of took me by surprise. I have never really met anyone who thought that the government should be solely responsible for taking complete care of us. That is an impossible dream, in my opinion. The government can only TAKE from the economy. They create NOTHING. So, in order to provide the above utopian society, everyone has to either be forced into accepting equal everything, or have to voluntarily give up everything they have until each person is equal. Unfortunately, that is not in the nature of man. We are built to compete, and as a result, some are going to be more driven and are going to be more successful than others.

Next came the following comment (by another person in the thread):

I think we should do both, raise the minimum wage and tax the rich something like 75%. I’m never gonna be rich, so fuck ‘em.

That comment was even more shocking than the first. This individual has such a low self-esteem. He KNOWS that he will never succeed. So he either admits that he has no skills, and will never rise above being a barely-successful nobody, or knows that he is a lazy good-for-nothing who does not want to even try and would rather just survive at the expense of someone else’s labor.

Of course, the third possibility is that he feels the rich have made it so that no one else can succeed, and so is being a ‘realist’. He knows that nothing he does will matter. To which I take exception, as did not the guys who created Facebook, Tumblr, and soon Twitter become rather famous and wealthy? Even in this regulation-heavy world? This belief, to me, means he is just scared to try. He has no faith in his own ability to carve out a successful life for himself and his family. That or it is a jealousy issue. He knows he cannot make it, and so hates those who did. He would rather just strip successful people of their labor in order to satisfy his feeling of inadequacy. There was a time when we actually idolized the super wealthy. We wanted to be them. We were driven to succeed, just like them.

So, seeing these comments regarding minimum wage, I entered the fray with my own two cents. I commented on how studies have shown that mandating a higher wage has, in fact, caused the opposite effect, including raised un-employment, raised prices, etc. It was an innocuous statement, pulled from my business class memory where this very discussion arose.

With all I said, the only thing taken was ‘studies’. Mr. Jealousy only cared that I state what study and by whom. A second fellow trotted out the old ‘conservatives like to throw about the word study but yet cannot give details as to who or what was said‘. I swiftly apologized for not keeping my college notes handy, and promised to bring forth my evidence. Which brings us to here.

First of all, I balk at the indication that ‘evil rich’ guys are sticking it to us. Of course I will admit that there are some shady people out there bilking people for all they are worth. Man can be inherently wicked. But by and large I do not think that this is the case. Businesses are created, usually, for one purpose – to make money. And when something threatens that profit, a business is obliged to do what it can to maintain its desired margin. I would assume that each person on the employ of said business would agree. If the business did not, everyone would be out of a job.

Raising the minimum wage is one of those things that can affect the bottom line. In 2011, a major study was done in the Alabama/Georgia area regarding how businesses handled the mandated raising of employee wages. Contrary to arguments (my own included) those businesses did not just run out and slash jobs. In fact, they didn’t even jack up their prices to offset the cost. What, then, is the problem? If these businesses were fine and profitable after the increase, then obviously we can raise it again. As has been seen in many recent news reports, fast food workers are demanding that they get a ‘fair’ wage of $15.00/hr.

Unfortunately, it is not so simple. That same report showed just what those businesses did to offset higher employment costs. They hired more experienced help, instead of young kids seeking their first job. Thus while overall employment remained steady, the employment of youth dropped. They stopped or delayed any forthcoming raises, or bonuses. They reduced the availability of overtime (a personal experience of mine saw that my hourly workers loved their 1.5-2 times hourly wage for overtime, resulting in their getting a larger check than me, the foreman.)

Businesses eliminated or reduced training. They significantly raised performance standards (resulting, I imagine, in smaller chance at bonuses or promotion). They hired part-time instead of fulltime employees. They decided not to hire or expand, instead having the same employees do more for the check they earned.

All of these things were a direct result of being forced to pay people more wages. Now you may not think there is any big deal with the above scenario, but tell that to the kid trying to get his first job; trying to pay for college. Tell that to the ass-busting employee who is always willing to work extra to meet production requirements, and who many times relies on that overtime pay.

Additionally, it has been shown that raising the wage really does nothing to help people out of poverty. This has been a rallying cry as well; folks want a ‘living wage’. I.e., they want to get out of poverty. The statistics just do not bear this out. From the Bureau of Labor Statistics, only about 20% of all minimum wage employees are heads of household or fulltime spouses.

So let us be specific in our studies, as was asked previously. Let us start with the studies by the guys now working for President Obama. David Card and Alan Kruegar. They did a study a while back that said raising minimum wage had no real effect on the employment rate. Great! So let us do as we said, and raise it to $15.00/hr. Not so fast. Even the author admits that the raise has to be ‘modest’- whatever that means. Doesn’t that defeat the purpose of the raise? Instead of $7.25, we can go to $7.30? $7.50?

The above study has come under fire by others. Apparently, economic folks such as Benjamin Powell, Donald Deere, Kevin Murphy, etc., state that the results of the study were an outlier. In fact, the study was done using phone call interviews. And not all participated. An average of about 80% did, but the study did nothing to account for those who did not; What about businesses that went under? Shouldn’t they be part of the equation, no matter how small?

In 2000, another study was done on the exact same area over the exact same time period. In this case, Neumark and Wascher used payroll records (imagine that… using actual data and not a phone call). The results of the new study were the exact opposite. Neumark and Wascher found that the data was

“…consistent with the predictions that raising minimum wage reduces the demand for low-wage workers.”

From a report in Forbes (emphasis mine),

Helpful would be detailed research on the latest phase of the multi-year increase starting in 2009. Argued Crocker: “Certainly, the raw data is not encouraging. Whereas the number of employed people in the U.S. fell by about 4.6 percent from July 2008 to July 2010, for teenage workers (a reasonable proxy for minimum wage workers), employment fell by a whopping 21 percent.”

Further in the report, we see

Economists William Even and David Macpherson concluded of the 2005-2007 increase: “the consequences of the minimum wage for black young adults without a diploma were actually worse than the consequences of the Great Depression.” After the July 2009 increase, contended economist William Dunkelberg, “nearly 600,000 teen jobs disappeared, even with nearly four percent growth in the economy,” which “compared to a loss of 250,000 jobs in the first half of the year as GDP growth declined by four percent.” Last year the unemployment rate for teens was 24.9 percent and for minority teens was 38.2 percent.

I don’t think I need to go any further. My antagonists wanted studies, and I gave them some things from what I had discussed in class as well as had read online.

I will end by saying that I know studies can be slanted. I think a lot of them are. Minimum wage studies are no different, but these things have been going on for decades. A large portion of them (again, just going by what these other studies I have read have claimed. I did not, personally, read every study since 1938) indicate that mandating a high wage ultimately hurts people. Lower employment rates, higher costs, business decisions that hurt everyone- all of these things are a direct result of government trying to be the ‘good guy’.

The purpose of government is not to make everyone equal. The purpose of government is to 1. Protect the people, and 2. To make it fair, so that everyone has an equal shot.

If you want the government to run your life and dictate every aspect, move to a communist country. The free market, when left alone and to work as it is intended, increases the wealth of that nation better than any other economic system.

That is not me talking, that is 5000+ years of experience in other forms. The free market pull the world up from the stone ages. If it were left alone, imagine how much farther we could go.

The revolution is at hand. Will you be a leader or a follower?