The chicken or the egg?

In an article about the increase in the minimum wage, the newspaper yesterday bemoaned the fact that the increase has been eaten up in higher prices. I'll grant you that the major cause of higher prices today is the increase in gasoline and corn. But there is another factor in the increasing cost of consumer goods. This is the second round in the 3-part minimum wage increase mandated by congress. The first increase took effect last year, and most employers don't eat those costs -- they are passed on to the consumer in the form of higher prices on goods and services. If that doesn't happen, some minimum wage employees will be laid off. So part of the reason minimum wage workers aren't seeing any increase in their buying power with their pay raise is because the minimum wage was raised. It's a chicken and egg situation.

Consider the small business owner. The total increase in minimum wage will be $2.60 (I think my figure is correct -- at any rate, it's close). The employer not only pays that extra $2.60 an hour -- an extra $104 a week for a full-time employee -- he also has to pay, at the least, social security, state unemployment tax, and federal unemployment tax on the increase. If he offers contributions to a pension plan, he also pays that. Those costs will make his increase in costs more like $2.91 an hour depending on his unemployment tax rate and pension contribution. That cost is either eliminated through job cuts or passed on to the consumer in higher prices.

Consider the minimum wage worker. Minimum wage is a starting wage. It is for people learning the job, high school students, part-time, and temporary jobs. Very few people who start at the minimum wage are still making the minimum after six months in the same job. The concept encouraged by the media is that the same people have been working for the same amount of money for all these years without a raise. It just isn't true. Minimum wage is a "pass-through" wage. The trainee will hopefully learn the job well and earn a higher wage. The high school student will hopefully be more qualified when he graduates and will get something a little better. The part-time worker may do such a good job that he will be asked to take a full-time job at a higher wage. Ditto with the temporary worker. In my first job, I made minimum wage about three months before I was given a raise because of my job performance. It is just not true that people get "stuck" in minimum wage jobs.

Consider the whiner. The wire report of this story included the example of Walter Jasper. Walter earns minimum wage at a carwash in Nashville. "It will help out a little," said Walter, who with his fiance supports a family of seven. "I'd like to be on a job where I can at least get a car," he said. Why does someone incapable of earning more than the minimum wage have five or seven children (depending on your interpretation of the sentence)? My guess is that Walter and his "fiance" aren't married because his "fiance" is drawing some form of government money on all those kids. Without more information, Walter doesn't get my sympathy. Bruce Cooper works full time for minimum wage in Kansas City, Missouri. He buses tables. He said he makes far less than his chef's training and skill level merit. Kansas City is a fairly large city. Is he saying he can't find a higher paying job that would utilize his skills? Is he saying he should be paid a chef's wages for cleaning tables? He says he's going to have to decide whether or not to drop a job he loves or stick with it. Does that mean he intends to go on the welfare rolls, or that he intends to find something better? Without more information, Bruce doesn't get my sympathy, either.

So the bottom line is, when you pay more for that quarter-pounder with cheese, it's partly because that gum-smacking, oblivious teenager serving it to you has received a huge government mandated raise he didn't deserve and is now making a whole lot more than he's worth.

"Workers getting a 70-cent raise today." The Dallas Morning News; July 24, 2008; p. 1A.