Raising the U. S. Minimum Wage in a Lower-Wage World

What are we Americans and our elected politicians thinking?  The real minimum wage is zero for many Americans who cannot find a job at all.

At this tenuous stage of our economic recovery, raising the federal minimum wage would only make businesses more prone to raise prices, to put greater work responsibilities on fewer employees, to adopt technology alternatives, and to outsource work to the lower-labor-cost, domestic and overseas vendors and suppliers of services.  The last choice is to go out of business or adopt a new business model.

Think a minute about how the minimum wage is used and to whom it applies.  Minimum wage is paid for entry level jobs, part time jobs, jobs for under-educated or untrained workers, etc.  Those who do a good job, and prove reliable, usually get raises.  In other words, entry-level, unskilled, or transient workers start at minimum wage. (See notes and links below)

So let us suppose the federal government raises the minimum wage to $10 or even $15 per hour, as some fast food workers propose.  Sure, those who get the higher wages will be happy, but who will choose the employees to keep?

Imagine you are the owner or manager of a business that has a very thin profit margin now.  If you calculated the added costs of a higher minimum wage would erase or greatly erode that margin, you would have six choices:

  1. Raise prices on the goods and services the business provides.  This option is greatly limited by the likes of Walmart.  If your customers can get the same or equal/services for less, where would they go?
  2. Increase the workload of a smaller staff.  This option is limited to the most work you could expect from each employee.  If the work gets to be too much, employees look for other work.  Walmart, and other discount retailers, squeeze suppliers and staff to limit costs.
  3. Adopt technology that replaces unskilled labor.  This is limited by the functions technology can fulfill.  We are all familiar with voice menus, websites, self-service, and vending machines.  Imagine what else technology can be designed to do.
  4. Outsource to US contractors.  The US military has greatly reduced the number of soldiers, marines, sailors, and airmen by contracting civilian companies to do non-combat and combat support services, such as food services, equipment and vehicle maintenance, etc.
  5. Outsource to foreign contractors.  Wages in other parts of the world are much lower, even for skilled work.
  6. Quit the current business and take on a different business model.  Many retailers have shifted from stores to online catalogs, for example.  Some businesses have shifted away from low-margin operations to higher market levels.

So, we would have growing unemployment among those who could get jobs at the old minimum wage, but not the new minimum wage.  Who bears those costs?

Add this to the list of ideas that sound good, but have unintended and undesirable consequences.

Notes:

  1. If you are not up to date on recent labor statistics, review the U.S. Department of Labor publication below, or go to http://www.bls.gov/cps/minwage2012.htm and read or download the report and the appendices.
  2. Some states have slightly higher minimum wages than currently mandated by the federal government, but none more than Oregon’s $9.10. (http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx)
  3. Although not included in the statistics, many self-employed people end up with less than minimum wage for the time they spend, depending on business conditions.
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