Government Wage-Hike Plans
I’m not certain when or if we’ll ever learn the lesson that paying a minimum wage is bad for a number of reasons. In the first place, the government intervenes into the free market—once again—and sets a mandatory wage for wage earners. On January 12, 2006, The Orange County Register carried an article entitled, “Wage-hike plan may have minimal impact” (Business, p. 1).
The article opened describing Jesus Nunez, who works as a polisher for motorcycle parts in Santa Ana, CA and earns the minimum wage of $6.75 per hour. We won’t even delve into whether or not Mr. Nunez is in the country legally. That’s a different subject and we’ll simply assume that he is.
What is particularly interesting is that Mr. Nunez is 36 years old. No doubt innumerable factors have played a role in Mr. Nunez’s current situation. The article by Andrew Galvin leaves a number of important questions unanswered. Was this intentional in order to slant the article or did Mr. Galvin merely overlook them? For example, readers might have wanted to know the answers to these questions: Did Mr. Nunez finish high school? Why is he not attempting to better himself, if he isn’t? Could he not do better with different skills? Are there grants to a trade school that would give him a higher take home pay? The Register doesn’t tell us.
We are only told that Governor Schwarzenegger plans to raise the minimum wage by $1 over the next two years. That alone would be incentive enough for me to start looking for something new and different—very quickly! The dicey part of the article states that Mr. Nunez is paid in cash, which means that he’s not certain that his employer would raise his pay even if Schwarzenegger’s proposal becomes law. I suppose that there are still employers who pay in cash and keep meticulous records and issue W-4 forms at the appropriate time for tax purposes.
It would seem that someone like Mr. Nunez would be moving on to something more lucrative, especially in light of the statistical fact that the purchasing power of California’s minimum wage—adjusted for inflation—has fallen 33% since 1968 (p. 10).
Galvin provides us with two other examples to ostensibly make his point. The first is Jessica Gonzalez, who is 20-years-old and works at the counter at Taqueria Guadalajara also in Santa Ana. She believes the money will help her family “which includes her 1-year-old daughter” (Ibid.). Is she married? Does her husband or “live-in” work? Are there more children in the picture? How many? Is she living at home with her parents? Nothing. Zero. Zip. Nada.
Galvin’s final example is Elizabeth Beltran, 18, who was not impressed by the governor’s proposal and responded, “It’s not much” (Ibid.). Is she also married? Does she have a child? Is she in school? Is she living at home with ma and pa?
Providentially, Galvin’s article appeared on the same page as Jonathan Lansner’s, which is entitled, “O.C. job growth rate 5th best in U.S.” Lansner points out that job creation in Orange County California was “more robust last year than previously estimated.” In short, 32,500 new jobs were added in 2005, almost 11,000 more than projected. That sounds like good news.
It never ceases to amaze me how often we have to come back to the subject of minimum wage to understand basic, elementary concepts of economics. First, young people are not expected to earn huge salaries. Most are still in school and are earning spending money and learning the value of a dollar. These are great lessons, but typically you don’t start as a CEO when you’re young. You tend to get “entry level” jobs. Some jobs, like being a waiter, waitress, or valet might pay the minimum wage but also include tips, which bolsters the take-home pay.
Second, forcing a businessman to pay a minimum wage might very well reduce the number of people he can actually hire for “entry level” jobs. All too often, we tend to look at this problem from the perspective of the employee—us—and not from the standpoint of the employer. Let’s do that for a moment going on the assumption that many young workers won’t stay at the entry level forever.
When I was a lot younger, I used to think that the idea of a “minimum wage” was a good idea, but not I know that it isn’t. Why did I want my employer to have to pay me a minimum wage? The answer was simple: I wanted more money. In reality, I didn’t think beyond that point. I had just joined the work force and was experiencing some of the freedom that comes when you earn your own money. I had things to do and people to meet and all of that cost money.
Maybe you think about the minimum wage now the same way that I did “back in the day.” What I want to do in this article is to try to get you to see that the minimum wage is a bad idea and not a good one.
In order to help you understand this, I’m going to use some very simple examples. Let’s say that you own a business and the government tells you that the minimum wage is now $9.00/hour. You need to hire someone to work for you cleaning up and doing the kinds of “entry level” jobs that young people tend to have to do. So you hire a person and after a week of analyzing your business you discover that the person you hired at $9.00/hour is only giving you $4.00/hour in actual benefits. In essence, your business is losing $5.00/hour because you hired this person.
If the government had not set a minimum wage and you offered the same person the same job for $3.50/hour he or she might have said “No.” He also might have said “Yes” because he needed some spending money and the job was simple and didn’t require much thinking or education. Maybe you could have come back to the employer and said, “$3.50 is not enough, but I will work for you for $4.00/hour.” He might have counter-offered with $3.75/hour and then you both shake hands and agree. You’ve got a part-time job and he’s got an employee at a price his business can afford.
Now a lot of people in our modern society want everyone to have the same opportunity, irrespective of their abilities. Again, let me explain. This time, I’m going to use an example using meat. If you go to the grocery store and want to buy the best steak available, you’ll probably pay around $5.00/pound. If you want to buy hamburger, you might pay just $1.00/pound. Obviously, there’s a price difference based on the quality of the meat.
Pretend that meat could talk and that the hamburger complained that he was getting passed by on the shelves because more people wanted to eat expensive steak. Never mind that steak tastes a lot better, hamburger feels disenfranchised. In order to “level the playing field,” the grocery store manager raises the price of hamburger to $5.00/pound. Guess what happens. People still don’t buy it. Why should they when they can get stead for the same price? So the manager drops the price for both hamburger and steak to $1.00/pound. What would you buy? Well, everyone still buys steak—and the manager loses a lot of money in the process. The plain, commonsense truth is that hamburger and steak are not equal. Trying to make them equal by fixing the price is an exercise in futility—it won’t work and it doesn’t pay.
By now you’re figured out that the same principles apply with human beings. Anyone in his right mind is not going to make the price of hamburger and steak the same. There are obvious glaring differences. Facts are stubborn things, so here are a few to nail this down. Most low-wage workers do not have a family to support. In fact, fewer than one out of five minimum wage workers have a family to support. What some of the liberals in America today want you to believe, however, is that those people needing a “living wage” have a family of four to support. The plain fact is that this isn’t true.
Fact: studies have shown that in countries where wage laws have been imposed, actual jobs have been lost. In short, the minimum wage/living wage kills and lessens jobs.
Fact: as imposed wage rates rise, certain people are eventually made “unemployable.” Everyone has his price and all of us would eventually price ourselves out of a job if we kept asking for more than we’re worth. The minimum wage continues to raise the bar and ask Mr. American Businessman to pay more and more for less and less.
Besides, when the government makes businesses pay a certain wage, they actually hurt young people. How? Well, again, it’s pretty simple. If Mr. Businessman wants to hire two young people at $3.50 each/hour, but the government says he has to pay $9.00/hour/person—well, as you can see there is a definite problem there. Do the math. Somebody isn’t getting a job. Remember that the next time you hear people talking about the virtues of having and giving a minimum wage.