Footnotes:

(1) The Economic Policy Institute, a labor oriented organization, has a minimum wage section on their website at: http://epinet.org/studies/stmwp.html

The Federal Reserve website is: http://www.federalreserve.gov Search on “minimum wage” in quotes.

The National Bureau of Economic Research search engine is at: http://www.nber.org/search/ Use the “Search the NBER site” window with “minimum wage” in quotes.

(2) Fuchs, Victor R., Alan B. Krueger, and James M. Poterba. Economists’ Views About Parameters, Values, and Policies: Survey Results in Labor and Public Economics. Journal of Economic Literature, vol. 36, no. 3 (September 1998), pp. 1387-1425.

Don’t raise the minimum wage

To most people a Hawaii minimum wage hike above today’s $5.25 an hour would appear only fair—especially for those working families whose earnings are below the poverty level. However, while a laudable intention, such a hike would have harmful effects and there are far better ways to help these folks.

The minimum wage question is, in fact, comprised of two different questions:

Of what value to employers are certain low-skilled workers?
How should we help bridge the gap between this value and a living wage?

First: Workers have value to employers according to whatever employers are able and willing to pay in a competitive market and still at least cover their costs. We are not defining an individual’s value or worth as a human being but simply what they are worth to an employer.

For someone with few skills, poor English, little education and a poor attitude, that worth may be very low. That will be especially so if they incur high supervisory and training costs and their inability to communicate well is costly to the employer. Some people are not even worth the current minimum wage to employers. These are among today’s unemployed.

Second: How we bridge the gap between a living wage and worth to employers is a welfare issue. Attempting to burden employers with the welfare function will always fail because employers have to at least break even on their costs.

Just as contractors cannot buy construction materials at inflated prices and then make competitive bids, nor can employers of any type buy labor at inflated prices and still be competitive.

The government can mandate a minimum wage but they cannot mandate employment.

The most harmful effect of any minimum wage is that it deprives those who are unemployable (at the current rate) of getting a foot on the lower rungs of the income ladder. Imagine repealing the minimum wage in its entirety. Those currently unemployed because of it might be offered jobs at $4.50, $4.00 or $3.50 an hour. Whatever the amount, it would enable employers to hire the currently unemployable (getting them a living wage is a different issue). Many, especially teenagers, have to learn work skills as simple as getting to work on time. Others need to understand the economic importance of the ability to use Standard English at work and thus, the economic benefits of learning and practicing it.

Work at any wage gives people the opportunity to develop the skills that will eventually enable them to earn far more than the minimum wage. People need hope not rejection.

Another harmful effect is that as the minimum wage goes up, so does unemployment. This is shown in study after study. And it conforms to basic economic principles; when prices of products and services increase, the purchase of them declines. For every study by a labor organization asserting that raising the minimum wage has little or no effect on unemployment, there are 20 from the Federal Reserve Board and the National Bureau of Economic Research showing that it has a serious detrimental effect. (1) And a recent national survey shows that economists are in general agreement on this. (2)

Just think through the implications of raising the minimum wage by $10 and it gives you an inkling of the impacts of raising it by $1. The effects are the same, only less so.

Then there is the detrimental effect on consumers. Among the approximately 13,000 Hawaii workers earning minimum wage (2.4% of the labor force) are tip-earning restaurant workers, commission earning retail store employees, and those others who get tangible, valuable benefits in lieu of higher wages. Working families are a tiny fraction of these minimum wage earners. To mandate a raise in all minimum wage workers would be an unnecessary burden on consumers since all employer costs are passed along to them.

We can all sympathize with working families in poverty, people who are trying their best but, for sundry reasons, are unable to financially cope. We should help them within the welfare system rather than exacerbate the problems that accompany a minimum wage hike.

Cliff Slater is a regular columnist whose footnoted columns are at www.lava.net/cslater