Minimum Wage - Minimum Growth

A co-worker who reads my blog commented on the posts I've done on minimum wage by mentioning that, after the last raise in minimum wage, there was not a job loss, but rather a job increase.

His point, of course, is that this is proof against the claim that people such as myself make, which is that for a business to increase the minimum wage, that additional money must be accounted for in one of three places, either in 1) a decrease in profits for shareholders, 2) an increase in prices, or 3) in a cut-back of employees (hint: it won't be #1).

This doesn't occur to people right at first, but the money to pay higher "minimum" wages has to come from somewhere. Even if someone were naive enough to believe that a well-intentioned CEO would sell his summer home(s), his plane, and his big boat to increase the wages of his employees, the simple truth is that this wouldn't cover the expense.

After all, it isn't just the minimum wage employees who would see an increase. Their increase would send a ripple up through pretty much the entire range of salaries. Another friend of mine disagreed with this theory, pointing to the fact that such an across-the-board increase did not happen at a local restaurant. The raise in minimum wage (affecting mostly the cook staff) did not raise wages for the remaining employees.

And it probably wouldn't. But at a union company it would, especially as union contracts are negotiated using the current minimum wage as a plumb line. New contracts, then, typically see an increase in wages for all union employees, whose representatives stipulate that seniority must be reflected by a increase in pay. Calculate the implications of this for a company with a few thousand employees (and include the increase in taxes and benefits), and the end result is that prices must either be raised significantly, or the bottom-rung positions must be eliminated in order to keep more skilled labor. And after the union-based companies raise the bar, you can bet the fair-market competition would bring those wage increases throughout the community, even my friend's restaurant.

This relates to Catholic social teachings because an increase in prices and a reduction of unskilled positions hurts exactly the people that a raise in minimum wage was intended to benefit, the struggling poor. This is especially true because many companies pride themselves on trying to provide entry-level position (the first type of job to be cut) to allow unskilled workers to find an entrance into the workplace, learn a trade, and build a resume. There are simply better options out there for assisting the less-fortunate, especially since so much of a minimum wage increase ends up in the gasoline tanks of teenagers.

Which brings us back to the idea of job loss. The earlier point that we saw a job increase after the last minimum wage is a red herring. To use an analogy to illustrate, if a child drinks a lot of coffee, it supposedly stunts his growth. A parent to that child, however, could try to refute that argument by pointing out the fact that all the time that child had been addicted to his three cups of coffee in the morning, from about age eight to seventeen, he had grown from just over three feet to five-foot-five.

"See," that parent might say, "he grew two-feet, five-inches, so coffee must not stunt growth, as you say."

But isn't the question here how much that child would have grown had he not been stunting his own growth? Perhaps five-seven? Perhaps six-feet?

Of course there was job growth after the last minimum wage. This happened for a few reasons, such as population growth and the fact that the artificial minimum wage was often times lower than the market-set minimum, making it more or less impotent (though this probably won't be the case with some of the increases that have passed recently, which are set to increase according to inflation).

The issue of minimum wage is, of course, a lot more complex than this one point, but when people point to job growth during the years after an increase in minimum wage as "proof" that it doesn't reduce jobs, the real issue is with how many jobs might have been created had we allowed the free market to grow without artificial restrictions.