Effects of the Minimum Wage: We Told You So!

There’s an old saying that I’m sure you’ve all heard: be careful what you wish for, you may get it. Teenagers in Arizona are learning that the hard way thanks to their recently-enacted minimum wage hike. Bombarded with the same emotional garbage you and I were hit with this fall over how nobody can ever support themselves or their families on (whatever the current rate was) an hour, voters with the best of intentions passed similar raises in states across the country. Now, not even two months after many of these initiatives went in to effect, workers in these states are suffering from a case of unintended consequences.

Libertarians and conservatives threw everything they could at these initiatives- objective information, logic, charts, and the basic knowledge you learn in Economics 100 courses- but they were ignored by voters and labeled as heartless and unsympathetic to the needs of the poor. Never mind that the vast majority of those on minimum wage are young and work part-time, rather than the struggling single mom with several kids trotted out in the commercials: a whopping two percent of the American workforce above the age of 25 makes the minimum wage, and all of 4.1% of those on minimum wage are single parents. I’m sure most of you reading this have completely forgotten what they teach you in the very first economics course you ever take, assuming you took it at all. Raising the minimum wage makes hiring more people more expensive and thus, more difficult to do, especially for those small businesses liberals love to talk to us about in contrast with the evil corporations. With this in mind, businesses are forced to hire the best workers they can for even the most basic of tasks, since they can’t afford to take risks on the uneducated and inexperienced. I shouldn’t have to explain that if it’s more difficult for you to get hired, it’s more difficult for you to get a job, but even this basic tautology is lost on the political left.

Consider what is currently happening in Arizona. The good people, while feeling warm and fuzzy inside because they think they’ve helped the poor, are now witnessing the havoc they’ve wrought, often while searching for jobs themselves. The recent hike has caused some employers to cut hours, institute hiring freezes, and lay off employees because they simply can’t afford to do otherwise. And guess who the first to get the pink slips were! Businesses, especially in the food industry, are being forced to take fewer and fewer chances on workers with little education or experience, effectively pricing them out of the labor market. For those on the left, that typically means you and me. On the other side of the coin, those who were fortunate enough to keep working were enjoying the benefits of slightly more money. Yes, raising the minimum wage is great . . . if you can keep your job.

While those suffering the consequences of the minimum wage hike would appear to be clear enough, those reaping the benefits are not. Some of the most ardent supporters of the new hike (besides elected officeholders desperate to find some issue that could beat the Republicans) were union members. This would seem ironic since their wages are typically well above the minimum wage. In fact, they’re often contractually tied to the minimum wage, guaranteeing them a certain percentage above the mandated rate. That’s right, the one’s who are really profiting off the short-sightedness of American voters are not the poor, the downtrodden, or the single moms, they’re economically comfortable unionized workers who don’t give a damn about the poor, the downtrodden, or the single moms. All I can say is “we told you so.”

Minimum Wage Hike Hitting Consumers in the Pocketbook

As we covered earlier in the week, the Ohio minimum wage hike, and pending federal minimum wage hike, are having unwelcome consequences to consumers. The restaurant owner that I spoke of in the previous post is definitely not alone, as the Columbus Dispatch has a story today about rising prices due directly to the increased minimum wage that took effect on January 1, 2007. I also talked briefly about the fact that employers will not be able to hire as many workers or give current workers as many hours as usual in order to offset the costs, and this quote from the article about Columbus-based Max & Erma's perfectly illustrates that.

"The company also plans to improve its scheduling to make up the remainder of the pay boost’s total impact, which is estimated at more than $1 million a year at the chain’s 33 Ohio units."

By the way, "improve scheduling" is corporate-speak for cut hours and staff, for anyone who did not catch that. Another portion of the article talks about another Columbus-based restaurant chain, Bob Evans, and the negative impact that the higher minimum wage is having already on their stores.

"Bob Evans, which employs tipped servers and hourly workers, operates on slim margins, so any significant cost increase has an impact on the bottom line, said Tammy Roberts Myers, spokeswoman for the Columbus-based restaurant chain."

Beyond not actually helping workers, and being bad for business and the customers of those businesses in general, this hike is hurting Ohio-based businesses as well. Nothing says, "Ohio is open for business," quite like killing your homegrown companies.

$6.85 Not Enough for Ohio's Congressmen

Yesterday in the U.S. House of Representatives, under the steady guidance of newly-elected Speaker of the House Nancy Pelosi, the Fair Minimum Wage Act was overwhelmingly passed by members of both parties. The Fair Minimum Wage Act, if it passes the Senate unchanged, will raise the minimum wage in three steps over the next 26 months to $7.25 an hour. While all Democrats voted for the bill, many Republicans crossed the line as well to support the measure. In all, only 116 Republicans voted against it, with 4 abstaining from the vote. It was no surprise that each of the Ohio delegation's Democrats voted for the wage hike, but six of the Republican members abdicated on the bill as well. Jean Schmidt (R-OH 2), Michael Turner (R-OH 3), Paul Gillmor (R OH 5), Steve LaTourette (R-OH 14), Deborah Pryce (R-OH 15), and Ralph Regula (R-OH 16), all were supporters of HR 2, and all should be on the receiving end of concerned e-mails, phone calls, and letters.

The minimum wage is an issue that is never given honest debate in the public arena, because anyone who wishes to speak against its merits is simply shouted down with accusations of hating poor people, when the opposite is actually true. Raising the minimum wage only affects workers in entry-level positions, a very small percentage of the workforce and an even smaller sector of workers supporting a family on that salary. According to Dept. of Labor statistics, a mere 479,000 workers were paid at the minimum wage last year, which does not even equate to 0.25% of the American population! Let us think logically then, considering the fact that most of the entry-level jobs in America (fast food, restaurant workers, grocery store clerks, and public recreation employees like lifeguards and YMCA referees) are worked by either high-school or college age students who are not relying on their part-time work as their sole means of income.

That leaves us with the very small group of workers who are relying on these jobs to feed their families. Raising their hourly wage feels good, doesn't it! Boy, it sure does! But, as with most government solutions in history, raising the minimum wage will create more problems than it is worth for these workers. The grocery stores they shop for food at will have raised their prices to offset the wage increases, the public recreation facility that they send their children to as a means of babysitting will charge more, the gas stations will raise their prices to compensate for their higher pay, and on and on. All of these factors will combine to eat away at most, if not all, of their pay raise, making it a moot point. Aside from price increases, firms will not be able to hire as many new workers, making jobs scarce as well for those who need them.

Who does the minimum wage help, then? Well, unions who operate on contracts with set pay raises certainly benefit. When it comes time to renegotiate their next deal, if they wait that long, unions can simply point to the unskilled laborers making $7.25 and demand more based upon their status as skilled labor. Then, the same thing happens to these firms as did the entry-level firms: they have to raise prices to make up for the wage increases.

In Ohio, voters recently passed an increase to the state minimum wage that raised it to $6.85, effective January 1, 2007. The law also increased tipped employee minimum wage to $3.43 an hour, and instituted an annual increase tied to the rate of inflation. Given a conservative, steady amount of inflation, 3%, in 2008 Ohio's minimum wage will rise over $7.00, and in another few years we will be talking about minimum pay near $10 an hour, as there is no cap written into the legislation.

Recently I spoke with a Columbus-area restaurant owner who estimated that the current wage hike in Ohio would require his business to make at least $0.30 more off of each customer walking through his doors. What do you think he is doing to keep his business from losing money? That is right, he is being forced to raise his prices to compensate. The kicker to this story is that he is not paying any higher wages to his kitchen staff, as they already begin at $9 an hour or higher, but simply to his serving staff for their mandated wage increase of over 61%. Even more ridiculous is that his servers receiving the wage increase typically garner around $10 an hour simply in tips and gratuity on a bad night. He told me, as well, that most other restaurant owners he had spoken with where in the same boat: raise prices to avoid losing money.

A friend of mine relayed this story about a major Ohio city's YMCA, where many inner-city youth are able to enjoy low-cost sports leagues, swimming classes, and after-school activities. They recently inquired about returning to work part-time while in college, and was told that the minimum wage increase had effectively prevented them from bringing on any extra help. The YMCA was also forced to drastically raise membership costs, as well as enrollment fees and league fees, in order to stay afloat. As a result of this, many of the inner-city children who are able to receive guidance and a safe haven to have a good time in through the YMCA will no longer be able to afford it.

Voters went to the ballot box in Ohio on November 7, and in Congress yesterday, and made a decision rooted simply in making a good stage show. Raising the minimum wage sounds great, and, of course, if you vote against it, you hate poor people. Our kudos go out to the five Ohio Congressmen who stood up for what was right, rather than what was easy: Steve Chabot (R-OH 1), Jim Jordan (R-OH 4), David Hobson (R-OH 7), John Boehner (R-OH 8), and Pat Tiberi (R-OH 12). One of the quotes given by a Republican in opposition sums it up best. Rep. Jeb Hensarling (R-TX) said, ""In America we can either have maximum opportunity or we can have minimum wages. We cannot have both." This is a bad deal for the poor in America, and every single one of the Representatives, Republicans and Democrats alike, who voted for this hike should be ashamed of themselves for placating this small group of America's poor.