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Raise the Minimum Wage and Get Minimum Jobs
Fiscal Times ^ | 02/15/2013 | Ed Morrissey

Posted on 02/15/2013 8:16:42 AM PST by SeekAndFind

Like those of all modern presidents, Barack Obama’s State of the Union speech was filled with agenda-list items, long-held hobby-horse issues of his party, and inflated claims of the success of his own policies. Most of the content could have been lifted from campaign speeches in 2012, probably 2008, and arguably every Democratic campaign for the last 40 years. Kirsten Powers, the liberal analyst on Fox News, wrote in a column for USA Today that the speech made it seem that “President Obama's chief speechwriter has been replaced by a cliché-generator circa 1960.”

Among the blizzard of clichés was a surprising throwback to 2007. President Obama focused on middle-class economic issues, which came as no surprise after having taken criticism over his inaugural speech, which hardly mentioned jobs and the economy at all. The White House didn’t make that mistake on Tuesday evening, with 32 mentions of “jobs” peppered throughout the address, and a pledge to focus on economic growth and job creation. However, included with that commitment to focus on job expansion came a new proposal to raise the federal minimum wage from its current $7.25 per hour to $9 per hour.

“We know our economy’s stronger when we reward an honest day’s work with honest wages,” Obama told the joint session of Congress. “But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.” The President worked in a shot at wealthy CEOs at the same time: “In fact, working folks shouldn’t have to wait year after year for the minimum wage to go up, while CEO pay has never been higher.”

This plays into Obama’s theme of “fairness,” a strategy that ended up being successful in his campaign against the wealthy Mitt Romney. It plays on very sympathetic messages; most Americans will wonder how anyone can live on their own on $14,500 a year. Voters want an economic system that generates a fair, living wage for a fair day’s work. But the framing of this issue by Obama in the State of the Union speech provides a misleading context, and masks the failure of this policy in the past to produce the desired outcome.

Let’s start with the worker end of the equation. It’s true that minimum-wage earners don’t get a lot of money, but these are usually entry-level positions and starting wages. Workers don’t “wait year after year” for wage increases, unless they aren’t progressing from entry-level status or are changing from job to job at that level. Employers don’t wait for the government to raise the minimum wage to give existing employees a raise, mainly because the accrued experience makes the employees more valuable on the job market.

And that’s the big problem with these proposals. They don’t make people more valuable on the job market, especially those with no experience or proven skills. Minimum wage hikes make it more difficult for them to find jobs, especially in the short run. The raise proposed by Obama would increase just the straight wage cost for a business by 24 percent in its entry-level positions (and probably in other positions near that level), which businesses would have to absorb in one of two ways. Either they raise prices without providing consumers with a commensurate increase in product or service value, or they have to reduce staff to cover the increase. The former is inflationary and harms their competitive edge, while the latter gives businesses less flexibility to take risks, especially on new hires. Forced to pay a higher cost for employees, businesses will stick with experience rather than look to younger workers entering the workforce.

Consider what happened when Congress last passed a minimum-wage increase in 2007. At that time, overall unemployment was 4.7 percent and the job market favored workers. Among those between 16 and 19 years of age, the jobless rate was 15.3 percent, on the lower end of the range seen during the previous four years, the highest rate of which had been 19.0 percent in June 2003 during the previous recession.

By July 2008, overall unemployment had jumped to 5.8 percent due to the then-moderate recession that had begun in December 2007, but youth unemployment rocketed upward by more than five full points to 20.7 percent. As the wage floor stepped upward to its present level by July 2009, the youth unemployment rate rose to 24.3 percent. And while the overall unemployment rate has declined from 9.5 percent at that time to 7.9 percent now (albeit with a plummeting workforce masking the true nature of chronic unemployment), youth unemployment remains at nearly the same level as in July 2009, at 23.4 percent. Why has this been the case? When forced to pay more for labor, businesses will insist on getting more value for their money – experience and proven skills, even in entry-level positions. Younger workers never get a good chance to earn their stripes. That has long-term implications for their ability to earn in the future, as well as the social costs of high unemployment and restlessness of youth.

Worse yet, it’s the small business owners who get squeezed the most by this economic vise. The wealthy CEOs to whom Obama refers run companies large enough to dissipate the increased costs of minimum-wage hikes by balancing out cost reductions through economies of scale that aren’t available to mom-and-pop businesses. That puts smaller businesses at a competitive disadvantage that benefits the very CEOs that Obama scolded in his address.

Furthermore, that corrosiveness was amply demonstrated in a still-relatively healthy job market in 2007-8. With millions more unemployed, the jobs market is even more heavily tilted in favor of the employer, which will make that situation all the more dire for younger, less experienced workers – for whom the minimum wage is intended. That’s why John Boehner called this proposal dead on arrival.

“I’ve been dealing with the minimum wage issue for the last 28 years that I’ve been in elected office,” Boehner said. “And when you raise the price of employment, guess what happens? You get less of it. At a time when the American people are still asking the question, ‘Where are the jobs?’ why would we want to make it harder for small employers to hire people?”

We all want to see Americans prosper, and for people to earn wages that allow them and their families to live in dignity. Arbitrary hikes in the minimum wage don’t provide that, however, and even Obama’s target of $9 would produce an annual wage below the current federal poverty line ($18,720 vs $22,000). So what does succeed? As a former hiring manager, I can tell you what works. I spent 15 years hiring people into entry-level office positions for call centers, positions that usually paid above the minimum wage but reliant on it as a compensation basis. When the economy was slack and investors discouraged, I would have a flood of applicants for every open position, including on one occasion an unemployed man with a doctoral degree, and an unemployed college professor on another.

There was no competitive pressure to raise the entry-level wage, and my employees didn’t get wanderlust at the wage they were being paid. Most importantly, I never had to take a flier on an inexperienced but impressive applicant, thanks to the volume of more experienced candidates who were practically bursting through the door.

However, when investors put money in the economy and job creation flourished, we suddenly had to compete – and not just for new employees. As employees on staff gained experience, they would leave for greener pastures unless we raised the pay for everyone. During the Bush recovery, our company had to repeatedly revisit compensation to stem the outflow and get applicants to commit to joining our firm. That competition, in a well-performing and properly regulated economy, made the minimum wage an afterthought and lifted the living standards of everyone in the job market.

If we want to aim at that outcome as our goal, then we cannot punish the workers who want to enter the market and the business owners who would otherwise hire them by pricing new workers out of the equation. We need to focus on fixing the conditions under which businesses and investors operate in order to create the kind of expansion that spreads prosperity, rather than create arbitrary new costs that smother it.


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: jobs; minimumwag
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To: Nip

Totally true. I worked for a union and they admit that this is the only reason they push for minimum wage. They don’t care about the poor, they care about raising their member’s already inflated wages.


21 posted on 02/15/2013 8:57:08 AM PST by Rusty0604
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To: going hot

Exactly, and it will help fund SS and disabiity payments a little longer.


22 posted on 02/15/2013 8:59:57 AM PST by Rusty0604
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To: jsanders2001

Robert Reiche has been advocating a $20 per hour minimum wage for DECADES.


23 posted on 02/15/2013 9:06:20 AM PST by longtermmemmory (VOTE! http://www.senate.gov and http://www.house.gov)
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To: SeekAndFind
The author is using logic to answer an attempt to increase the size of the dependent classes for partisan political purposes. The Left knows full well what a minimum wage increase does to entry-level employment. That's what they want to happen.
24 posted on 02/15/2013 9:07:46 AM PST by Mr. Jeeves (CTRL-GALT-DELETE)
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To: Buckeye McFrog

Yep... the left gets all up in arms when people/businesses move to COMPLY WITH THE LAW but not with what the left intended them to do - ie, eat it.


25 posted on 02/15/2013 9:09:49 AM PST by MrB (The difference between a Humanist and a Satanist - the latter admits whom he's working for)
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To: SeekAndFind

Whenever I hear some leftist offer that we need to raise the minimum wage, I always say, “If raising it is good, then why not simply raise it to $100/hr?” I always love seeing their dumbfounded expressions as they ponder this option. They know there has to be something wrong with this idea, but they just can’t figure out what.


26 posted on 02/15/2013 9:18:49 AM PST by Hoodat ("As for God, His way is perfect" - Psalm 18:30)
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To: Rusty0604

The difference now is that union membership has plummeted so dramatically that they are increasingly desperate for new revenue to keep the gravy train rolling. So organizing new amnesty recipients in their minimum-wage workplace has become attractive to many unions. Anything for the dues.


27 posted on 02/15/2013 9:19:15 AM PST by Buckeye McFrog
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To: SeekAndFind
3) Most minimum wage earners are NOT teenagers.
They are adult working poor (Anybody check this at all?)

Less than two percent of people earning minimum wage do so to support their families.

28 posted on 02/15/2013 9:20:57 AM PST by Hoodat ("As for God, His way is perfect" - Psalm 18:30)
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To: MrB
You nailed it. American leftists never take into account that people will change their behavior accordingly when the rules are changed. That's why California leftist are shocked that California entrepreneurs would actually have the effrontery to leave the state when faced with overall tax rates in excess of 60%.

Of course European leftists already learned this lesson, which is why they build a wall around West Berlin back in the late 50s.

29 posted on 02/15/2013 9:26:02 AM PST by Hoodat ("As for God, His way is perfect" - Psalm 18:30)
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To: SeekAndFind

Like I heard on Rushbo sometime ago that Union contracts are based on the minimum wage. That’s Obamas bone to the Unions.


30 posted on 02/15/2013 9:27:46 AM PST by Rappini (Veritas vos Liberabit)
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To: Hoodat

The difference between liberty and tyranny is the direction the guns are facing at the border.


31 posted on 02/15/2013 9:35:30 AM PST by MrB (The difference between a Humanist and a Satanist - the latter admits whom he's working for)
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To: SeekAndFind

I would simply ask that everyone please start referring to this wage properly. Please start calling it the beginners wage. The minimum wage is meant to get a young person started in the labor force. If you are twenty five years old and are working for minimum wages something is wrong. Maybe you are suffering from a lack of ambition. Obama would say that we need more worker training. Bull all Americans are not stupid only the ones who voted for Obama.


32 posted on 02/15/2013 9:40:48 AM PST by cquiggy
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To: SeekAndFind

O.K. I’ll play.

1) Walmart is forcing you to see the unfairness of robbing one person to give to another (you presumably feel more deserving). This is what Foodstamps and Medicaid are. (Notice they are NOT in the Constitution.) It seems to rankle you when Walmart takes advantage of this, but not when people using and abusing these programs do. So, my hypocrit/BS meter is going off.

2) It would take a lot of detailed and compelling “studies” by organizations that are demonstrably non-partisan to convince me that Up-is-Down, or Left-is-Right. Bring it on. You are forcing a price for labor that the market does not support. This has many effects, all negative, on a free market. I’m not going to elborate any more on this than you have on your “studies”.

3) The extent to which minimum wage earners are NOT teenagers is the extent to which minimum wage and other point 1) programs are being abused. Minimum Wage is SUPPOSED to be exactly that. A MINIMUM wage that keeps a skill-less, inexperienced worker from being completely exploited by his lack of anything competitive to offer that allows him to command a higher wage. If he is NOT a teenager and single than WTF is going on? Is this the Gravy-Train? Do you have a RIGHT to reproduce irresponsibly or force others to compensate for you not improving yourself? If the JOB is not worth $9 an hour, then it is NOT. You can close your eyes and stamp your feet all you want, but you’re not going to change reality. All you’re going to ultimately do is change the value of what that $9 is worth.

How did I do?


33 posted on 02/15/2013 9:54:52 AM PST by Empire_of_Liberty
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To: SeekAndFind
So the argument goes like this -— Why should the taxpayer subsidize Walmart?

That question is trying to confuse the issue by conflating two ideas and misusing the word subsidize. The taxpayer is not subsidizing Walmart. The government would be subsidizing Walmart if it were paying Walmart directly so that Walmart could keep its prices low. Walmart is able to keep its prices low by keeping its costs low. Walmart has no control over whether or not the government gives out welfare or who the government gives it to, or how much.

Why shouldn’t a fulltime worker make enough, without welfare, to live?

A full time worker would make enough if he became more productive. The formula for wage rates is w = (d/s), or in other words, average money wage rates equals demand for labor divided by supply for labor. There is no divine right of stagnation. If a worker wants to earn enough then he should improve himself. There is a higher demand for knowledgeable, skilled, and experienced workers, and less of a supply of them, so they will be able to earn a higher wage rate on average.

34 posted on 02/15/2013 9:56:40 AM PST by mjp ((pro-{God, reality, reason, egoism, individualism, natural rights, limited government, capitalism}))
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To: SeekAndFind

The Pelosi house raised the min wage in the 2nd/3rd qtr of 2008 and GWB signed it into law. By the 4th qtr 2008 we were in an official recession. So, now Obama wants to do more of what caused the “terrible economy he inherited.”

Oh well, at least we get to punish small business owners!


35 posted on 02/15/2013 10:19:47 AM PST by CSM (Keeper of the Dave Ramsey Ping list. FReepmail me if you want your beeber stuned.)
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To: Iron Munro

2 people at $7.25 per hour will be merged into 1 person at $9 per hour, for a net saving to the employer of $5.50 per hour. The liberals will have to pass another law to prevent this.


36 posted on 02/15/2013 10:42:05 AM PST by Cyber Liberty
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To: mjp
A full time worker would make enough if he became more productive

The problem with that is that the average Lib can show you two hours worth of Powerpoint graphs based on Government data that demonstrate decades of climbing productivity vs. stagnant wages. (yes, I know that is due to increased automation and computers, but the Low Information Voters out there will never get that. They're convinced they've become more productive than ever but the Mitt Romneys of the world are pocketing their raises.)


37 posted on 02/15/2013 10:59:15 AM PST by Buckeye McFrog
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To: SeekAndFind

As has been reported, all the entitlement programs could be eliminated and that money would pay each family $60,000 per year. But, administrative costs eat up most of the money.


38 posted on 02/15/2013 11:00:53 AM PST by PatriotCause (California Sucks)
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