Minimum Wage = Maximum Damage

NTF Issue Paper: minimumwage1.doc. 7-14.


BACKGROUND. The current minimum wage in Nebraska is $7.25 per hour, matching the federal minimum wage. Our low state unemployment rate means that few employees for long earn the minimum wage. The Bureau of Labor Statistics reveals only 32,000 Nebraskans earned the minimum wage in 2012. The initiative to raise this wage will appear on the Nov. 4, 2014 ballot. If approved by voters, it would increase the state minimum wage to $8 per hr. on Jan. 1, 2015 and to $9 per hr. on Jan. 1, 2016. South Dakota, Alaska, and Arkansas voters also will see ballot issues to raise this wage. State senators this session soundly defeated a bill to raise the minimum wage, preferring free market competition to set wage rates.

LIBERAL SUPPORTERS AND DONORS. Supporters include prominent liberals and leftist organizations as follows: State Sens. Jeremy Nordquist, Tanya Cook, and Danielle Conrad; former Omaha Mayor Mike Fahey; Nebraska State Education Association, NE AFL-CIO, Center for Rural Affairs, Bold Nebraska, Nebraskans for Peace, and the Appleseed Center. Major contributors include Richard Holland ($350,000), NE Appleseed Center ($87,500), Dianne Lozier ($50,000), the NSEA ($50,000), the NE AFL-CIO ($25,000), Center for Rural Affairs ($19,000), and Matthew Johnson ($10,000). Labor unions relish the snowball effect of the minimum wage hike by demanding higher wages at specific levels above the minimum wage. Many union contracts index to the minimum wage, so union workers gain automatic wage increases without fear of job loss. The liberal campaign war chest generously doled out dollars. $250,000 to a Washington, D.C. consultant. $30,000 to Sen. Danielle Conrad for campaign consulting. $5,000 to the leftist group NE Appleseed Center. Liberals crow loudly that their ballot issue will succeed, as it has succeeded in other states. However, NE is a more conservative state, and NTF is widely publicizing the negative effects of hiking the minimum wage.

ECONOMIC FAILURE. Many studies examined the impact of raising the minimum wage on those who earn it. Because not all entry-level jobs fall under federal minimum wage laws, less-skilled employees priced out of their jobs after a rise in the minimum wage can find employment in the uncovered job market but at less pay.1 A thorough review of 2 decades of economic research on the minimum wage by economists David Neumark and William Wascher, from the Federal Reserve Board, concluded that increases in the minimum wage reduce job opportunities for the lowest-skilled employees. Economist Joseph Sabia used data from the Census Bureau and Bureau of Economic Analysis to measure Gross Domestic Product (GDP) and employment response to an increased minimum wage. He proves that such hike negatively impacts GDP. For each 10% hike in a state minimum wage, teen employment decreased by 3.6%. Also, there is a 2-4% decline in the state GDP generated by workers in lower-skilled industries like warehousing.2 Proponents of raising a state minimum wage base their argument on the belief that only government can raise wages for minimum wage employees, that such employees receive wage hikes only when the minimum increases, perpetuating the fiction that such workers cannot increase their skill level and corresponding wages without government help. Examining over 2 decades of Current Population Survey data, however, economists found independent wage growth among minimum wage employees very strong.3

Workers earning a higher minimum wage will only see their higher take home pay eaten by consumer inflation and less buying power from working fewer hours. Many minimum wage workers will see their living standards drop. Pressure on employers to raise the wages of higher-paid employees, wage inflation, will seriously erode profits. Salary compression will force wage hikes throughout a company. Small businesses and fast food and other service industries will raise prices, losing current and potential customers and thus lowering profits. Those who frequent such businesses will see inflationary costs eroding their spending money. Hiking this wage will increase the price of goods and services for all NE consumers, cutting into savings.

WORK FORCE CUTS AND REDUCED HOURS. Retailers will reduce staff and replace humans with machines, reduce fringe benefits like health insurance, and restrict personal and sick leave options. To cut costs, employers will allow fewer breaks and amenities like free coffee and snacks. Employees in the hotel, motel, and fast food industries will suffer reduced work hours and job elimination, the very people who have no skills to obtain other employment. Stiff competition in these sectors make it impossible for employers to raise room rates or menu prices. Many hospitality and retail businesses that pay the minimum wage operate on thin profit margins and will cut staff. In some cases, employment decreases more than the wage increase. As labor costs rise, employers will replace humans with electronic checkouts at grocery stores and robotics in communications, which one notices when calling businesses. Almost 40% of business owners who now pay the minimum wage stated that they would fire employees to cover the cost of wage hikes.4 Raising the minimum wage will curtail the amount of work available. Many minimum wage service workers will join the ranks of buggy whip makers from the last century. Minimum wages are a beginning point; 66% of those beginning here earn more within a year.

TEEN EMPLOYMENT RISKS. The NE teen (16-19) unemployment rate currently is 10.6%.5 Universities, which employ thousands of teens said an increase could trigger tuition hikes or result in their offering fewer employment opportunities. Teens will suffer most. Many workers earning the minimum wage are high-school kids needing entry-level work in order to obtain work experience and training; these workers would suffer higher job losses, as employers cannot afford to pay them higher wages. Fast food businesses have trained generations of teens in job basics, but that training will lessen. When France raised its minimum wage, McDonalds replaced its teen cashiers with kiosk machines. A teen employment study looked at the employment impact of the 40% hike in the federal minimum wage between 2007-2009 for those 16-19. In states impacted, teen employment fell by 6.9%, factoring in the recessive economy. Overall, 114,000 teens lost their jobs.6

STYMIED JOB CREATION. A raise will curtail the number of entry level jobs created. Machines in fast food and other restaurants now can slice toppings like tomatoes and pickles and place them on burgers, assemble custom meat grinds of burger and pork, and utilize gourmet cooking techniques. Machines are more consistent, sanitary, and can make 360 hamburgers per hour. Machines take no sick days, require no health care, do not come to work loaded on drugs, and happily work 24 hours 7 days per week. Machines need only routine cleaning and maintenance. Conservative Sen. Mike Enzi (Wyo.) declared that raising the minimum wage would kill mom and pop businesses and unemploy their workers. Pres. George W. Bush stated that raising the minimum wage would harass millions of small businesses that create most new jobs. NE Cong. Lee Terry declared that raising the wage would create an economic hardship for businesses that provide millions the chance to participate in our economy. Increased labor costs mean lower business profits, which offers these businesses less money to invest in job creation and business expansion. Employers will be unable to afford to hire those with little education or experience, because their value is less than their cost, though many minimum wage jobs translate into higher opportunities, after employees become trained. Part-timers will lose jobs, the first to suffer.

BOGUS LIBERAL ARGUMENTS. Two leading economists measured the impact of a higher minimum wage on several hardship scenarios, like financial, housing, health and food insecurity, using the Census Bureau Survey of Income & Program Participation. They found no statistically significant evidence that a higher minimum wage helped reduce these insecurities for all employees, including the less-educated and less-experienced. Moreover, many of the poor youth that liberals are attempting to help will not benefit regardless, because they are not working.7 Another study examined the wages and other employment characteristics of adults who earn the minimum wage. Contrary to liberal arguments, only a small percentage of these adults are family primary breadwinners. Among those with kids, almost 50% had a spouse who earned over $40,000 annually. 16% had spouses who earned from $30,000-$40,000 annually. In 80% of all these families, the minimum wage totaled less than 20% of household income.8 A Nebraska minimum wage employee working full-time earns wages above the federal poverty line, despite liberals whining that these workers lie mired in poverty. Extra pay will not help these poor, because the income boost would not lift families who are not in poverty out of poverty. The Congressional Budget Office notes that many low-wage employees are not in poor families, that less than 20% of workers who would benefit reside in households that earn less than the federal poverty line. Income tax credits for low-wage workers and tax policies that encourage asset development and savings for the poor seem better alternatives. The Earned Income Tax Credit gives incentive to work, because it targets only working households. Liberals ignore that some they supposedly champion lack the will and initiative to access higher-paying jobs. Likewise, liberals who claim that a higher minimum wage would impel people to abandon welfare ignore that some welfare recipients enjoy that lifestyle and would never leave it.

MORE TAXES. Those granted higher wages will pay higher sales and excise taxes as they spend more money. If they save and earn interest, they will pay more income tax. They will pay higher Social Security and Medicare taxes. All these higher taxes will erode their wage increase. Government at all levels will accrue billions in additional tax revenue.

TAKE ACTION NOW. Besides the reasons listed above, understand that liberals will use this initiative petition to solicit signers to go to the polls in November and vote for liberal Democrat candidates. Remember that the minimum wage is 0, if you are unemployed. Vote NO on the minimum wage hike! Talk to your neighbors, relatives, co-workers, and those with whom you socialize on a regular basis to vote NO on a minimum wage hike on Nov. 4. To join our NTF effort, email

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