Honolulu Advertiser

SECOND OPINION  by Cliff Slater

September 26, 2005

Pay workers only what they're really worth

As of next year, Hawaii’s minimum wage will be $6.75 an hour, the sixth highest in the nation. The year after it will be $7.25 and if other states do not raise theirs, we will be #1.[1]

To most people that sounds like a good idea to help the less fortunate. However, to those who look beyond the immediate idea of a benefit for low-income workers, it is a bad idea.

That is because if $6.75 an hour is a good idea, then $16.75 must be a better idea; it is not. Most people understand that if $16.75 an hour became the minimum wage then there would be considerable unemployment. In fact, what is wrong with $16.75 is the same as what is wrong with $6.75 an hour — only more so.

This is because it is very clear, both from the record and from common sense, that the higher elected officials raise the minimum wage, the higher the unemployment rate among those who are the least employable.

Think of differing hourly pay rates as steps on a ladder. Every step up the ladder is worth another dollar and let us cap it off at $36 an hour, that being what certain computer technicians earn with half of that, or $18, being the average wage.

Viewed this way, we have to ask ourselves why employers do not just pay everyone the minimum wage. The answer is that employers have to compete, and thus bid up wages, for the skilled, trained, educated, and motivated workers that they need.

On the lowest rungs of our ladder are the unskilled, untrained, uneducated, and unmotivated workers that employers cannot employ at the minimum wage (nearly seven rungs up next year) they would have to pay.

It is not by happenstance that Hawaii teenagers have an unemployment rate of 17 percent,[2] four times that of the population at large. At the end of World War II, with minimum wage rates far less effective, national teen-age unemployment was half that rate with black teenagers more employed than were whites.[3]

Today’s unemployed teen-age group is largely comprised of those young people we are “graduating” from high school with little education, no skills, and little motivation (the motivated ones somehow find jobs).

Under the new minimum wage law, such people will cost employers over $1,500 per month for a 40-hour week, including required health benefits and the many employment taxes and insurances. 

Employers have to think long and hard about how they are going to recoup their costs with such employees.

However, the way to get these young people off the streets is to allow employers to pay market values for them — even if only $2 an hour. The valuable training they would get in learning to come to work on time, bringing their shoes, and dressing and behaving appropriately (let alone learning actual work skills) will position them for further advancement up the income ladder.

There are other people at the current minimum wage level and these are typically immigrants. Their lack of English language skill, often a lack of education, and unfamiliarity with American behavioral norms make them difficult to employ initially.

Where our elected officials believe it is politically necessary that these people should receive an income greater than their market worth then they should consider the public financing of income supplements, for example.

The main issue is not to use a minimum wage law to attempt to force employers to pay wages higher than people are worth. Employers cannot do that; they have to cover their costs. That is why minimum wage laws do not work, and why elected officials only hurt those they supposedly mean to help.

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