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The minimum wage –another big lie?

April 4, 2016

While we wait to see how Wisconsin votes, it might be a good time to explore what happens when the semi-final contest winners finally move on in the process

This being the Santa Claus or Robin Hood season in politics, let’s address some of the results of the “government can do it all” claims, starting with the minimum wage.

Contrary to the views of politicians who try to deflect the anger away from their own lousy performances by defining this election in terms of some demographic “rage”, the emotion most expressed by most prospective voters this year is general outrage.

That outrage is centered around insincere campaign rhetoric, promises not kept and the utter disregard of the people’s wishes by their elected representatives.

One of those promises was to substantially increase the Federal minimum wage.

Every time this issue comes up, the political shtick is that  raising the minimum wage to some predetermined figure will “raise people out of poverty”, implying that a $15 minimum wage equals a living wage (LW).

With California and New York becoming the first state governments to mandate a $15/hr minimum wage, you might wonder how that actually stacks up to the so-called living wage.

Not very well as it turns out, although it depends on where you live and the size of your family.

In most cases, just has it has done in the past, raising the minimum wage simply leaves you less broke than you were before.

Examining the numbers

Using the MIT Living Wage Calculator, if you live in Los Angeles County, CA and have a representative lower income household consisting of one adult and one child, the $15 minimum still leaves you $10.72/hr short of the living wage, i.e. the wage that allows you to live without too much financial stress. If you live in Modoc County, CA, you only need another $5.73 to hit the living wage threshold. If you are single in either area, you might make out very well on $15/hr.

One caveat. Like many things supported by statistics, the report may not tell the whole story.

It should be noted that the MIT document itself has some flaws, relying as it does on data from the Feds. The report uses fair market housing costs as calculated by the government. In most cases that’s far too low.

For large urban centers like Los Angeles the average rent for an apartment is reported to be over $1700 a month. The report pegs that figure at just over $1,000 for a single person and $1400 for a one-person, one-child family.

It also assumes a 2080-hour working year. While full time employment has improved, many minimum wage jobs are seasonal or high-turnover. Even before Obamacare, they tended to average far less than 2080 hours annually.

It also fails to account for two-earner households. In short, take the figures with a grain of salt. The actual living wage could be much higher.

State vs. Federal

Big government proponents like Bernie Sanders and Hillary Clinton tout ever-higher Federal minimum wage levels to achieve income security, but never mention the pitfalls.

It’s an easy promise to make, but it sets the people up for disillusionment, simply because the promises never point out the downside.

According to politicians, raising the minimum nationally will solve most of society’s ills and benefits everyone. In practice, it might not work out that way.

What happens when applying the $15 target nationally does not fix the country’s ills?

In fact, it might make some people’s lives worse if it restricts job creation or drives more companies to Mexico or China.

The popular notion is that as California goes, so goes the nation. Maybe we ought to wait and see how this experiment works out for them in the next few years.

By the time California finally gets to the top minimum wage six years from now, inflation will have eroded that $15.00.  A 2009 dollar buys only 89 cents worth of goods and services today.

In addition, the more slowly you phase in the new minimum wage, the less short term benefit is realized. It’s not as though all those low-income folks are suddenly going to have hundreds of dollars more to spend every month starting in January 2017.

Then there is the hidden inflationary aspect. It isn’t just the two or ten minimum wage workers you have now whose wages go up. The California law reportedly mandates that some jobs now paying well over the minimum must increase their other employees commensurately.

If you delve into the numbers, one study has determined that 42% of all American workers make less than $15/hr. Predictably, those workers are clustered in the lower-skill service industries.

What about regional differences in the cost of living?  As noted in the examples above, the higher wage is going to benefit already lower cost of living areas the most.

Unfortunately that’s not where the bulk of the population lives, and those more populous areas are the ones receiving the least net benefit from the increased wages.

The argument for not raising the minimum is that it was never meant to be a living wage.

OK, but how far short of a living wage is allowable? Obviously the gap between $7.25 and $15 is a lot, but what amount is workable?

Does that mean that L.A. proper should have a $20 minimum wage for the hypothetical 1 adult 1 child household (LW  $25.72)? What if you  are single and have three kids? Should your minimum be at least $30/hr (LW $36.65)?

And there is the matter of inflation.  Landlords are not going to freeze rents at 2016 levels.

What about public assistance programs, or welfare if you prefer?

Most  programs are based on a percentage calculated on the “poverty” wage. What does $15/hr do to eligibility for subsidized housing, ADC or food stamp benefits for instance? Will less people be eligible or will the income thresholds move upward with the increase? How many people will lose their Obamacare subsidies?

That’s the problem with one-size-fits-all solutions. They never really fit most of us.

Don’t count on all those returning jobs.

Free enterprise is not always the great leveler the far right wants you to think it is, not by a longshot.

For one thing, some businesses are  going to get priced out of the market or, fearing even more increases, move out of the state or even out of the country, compounding an already lackluster job growth problem.

Would-be entrepreneurs are going to think twice about starting businesses that will be labor intensive, like landscaping, house cleaning  or some IT-related ventures.

The ugliest side of the minimum wage argument is that businesses that can afford to pay far better than they do, often don’t even come close to paying for value received from their employees.

That’s a problem the right never seems to be able to address effectively, as witnessed by Donald Trump’s position on the subject.

In one respect he’s right…American-produced goods are already too expensive to compete with imported goods that are produced using what amounts to indentured servants. Raising the minimum wage isn’t going to help that.

On the other hand, he seems to be saying that we can only level out those price imbalances by treating our workers the same way as do our global competitors. Effectively, that’s balancing the budget on the backs of those who can least afford it.

People aren’t blind. When they see very well off industries racking up record profits, it isn’t hard for them to buy into the idea of government enforced income growth.

Nothing the right has suggested to date deals with that problem, and they tend to resist raising the national minimum. Just how do you get companies to raise wages if they don’t want to do it voluntarily?

If there has to be government intervention in wages perhaps a better answer would be to leave it at the state level. Or, if the Feds absolutely have to be involved, how about issuing tax credits based on how closely a company’s  compensation addresses the needs of the average worker, adjusted for locality and experience?

For instance, the more closely the company’s minimum or even average wage gets to the actual average cost of living for the area, the greater the tax credit.

That shifts control of the workforce and payroll costs a little more toward the employers and employees, while still relieving some of the pressure on social services programs.

Theoretically, that should also mean that Washington wouldn’t need to fund so many social welfare programs.

But if that happened, what platform would the next Bernie or Hillary run on?

From → op-ed

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