NTF Issue Paper: cong113.doc. 1-14.
NEBRASKA TAXPAYERS FOR FREEDOM ISSUE PAPER:
RAISING THE MINIMUM WAGE A BAD IDEA.
BACKGROUND. Leftist Sen. Tom Harkin (IA.) in his S. 460 bill proposes to raise the minimum wage to $10.10 from $7.25 per hour, the wage since 2009. The Democrat Party platform supports this or a similar plan, considering it a signature issue. And the Obama Regime wants the new wage indexed for inflation.
PRIOR HISTORY. The first federal minimum wage in 1938 did not lessen unemployment or end the Great Depression. The Dept. of Labor found that this minimum wage, 25c per hour in 1938, ended the jobs of 30,000-50,000 of the workers covered and who previously had earned below the minimum. Economists accumulated statistical evidence ever since that minimum wage hikes disproportionately hurt lower-skilled workers. In June, 2006, before the 40% hike in the minimum wage, 42.1% of teens 16-19 held jobs. By June, 2010, only 28.6% of these teens held employment. In 1977, Congress established a Minimum Wage Study Commission. This panel found that a 10% hike in the minimum age reduces teen employment by 1-3%. A 2007 review of 102 studies beginning in the 1990s found that the minimum wage did not increase employment of low-wage workers. After Congress applied the new minimum wage to American Samoa, a territory with per capita income 1/5 of U.S. average, consumer spending did not increase, the economy did not boom, and new jobs did not appear. Instead, after the increase, Samoan unemployment skyrocketed from 5% to 36%. One of the two island tuna canneries sliced benefits and hours, laid off workers, and froze hiring. The other cannery closed because of unprofitability. The territory private sector economic base began crumbling except for the tourist industry. The Samoan Democrat governor pleaded with Congress to stop the minimum wage hikes.
CONSERVATIVE ARGUMENTS. Raising the minimum wage will make it more difficult for unskilled workers, like teens and early 20’s people, to obtain the work experience and training that would raise their productivity and progression towards future higher-paying jobs. These unskilled employees are less attractive at a higher minimum wage because they produce less per hour. Turnover is high for the teen to 24 segment. Businesses hire employees, only if expecting a return on their investment, and firms will not pay for training workers likely to leave before businesses recoup their investment costs. Government raising the minimum wage prices some employees out of the labor market, according to most economic studies. Young employees must pay for their training received by accepting a lower wage, then with experience and training can command a higher salary. A higher minimum wage encourages employers to hire already trained, experienced workers, thereby eliminating opportunities for new employees gaining experience and training. Money to fund a minimum wage increase provides no net stimulus. Businesses will not pay workers more than the value they create. These hikes cannot raise worker pay above their productivity but mostly prohibit less productive employees from working. Raising this wage will force businesses to raise prices to consumers to maintain their profitability. Few earning the minimum wage are supporting families; most are part-timers, students, or retired folks seeking spare cash. Most of the working poor earn higher than the minimum wage, and most of these wage earners are not poor. Only 1/5 of workers earning the federal minimum wage live in families with total household earnings below the poverty line. 60% of those earning this wage or less work in restaurants and bars and earn tips, often untaxed. Many minimum wage earners are not poor; they are members of households with one or more additional incomes, thereby exploding the liberal argument that every full-time employee should be able to support an entire family above the poverty line. Most youth are dependents, living at home or sharing expenses with friends, or working temporary summer jobs. In Jan. 2013, the U.S. labor force totaled 155.6 million, about 102 million employed full-time. Only 1.5 million earned the minimum wage, about .09%. Research proves that almost 66% of minimum earners obtain a raise from 1 mo. to 1 yr. after becoming employed. U.S. Census data evidences that only 15% of minimum wage earners are single parents, all eligible for the Earned Income Tax Credit. The average family wage of a minimum wage earner is over $43,000 annually. Most minimum wage earners probably would prefer to earn $7.25 per hour for a 40 hr. week than $10 per hour for 0 hours per week. The Heritage Foundation discovered in 2011-12 that only 2.9% of all employees earn the minimum, including service workers who earned enough in tips to push them above the minimum, and that only .6% of full-timers and 1.7% of full-time hourly workers earned the minimum. Its study found that 77.2% of teens earn more than the minimum. During the 2008-2010 recession, immediately after the last hike, the total number of employed in the U.S. dropped about 4.6%, but teen workers saw a 21% drop. Those having the least education, training, skills, and experience suffer the most, meaning youth and minorities. A 1973 study concluded that a 10% hike in the real, inflation-adjusted minimum wage hiked teen unemployment by 3.62%[1]. The highest costs of operating a business are payroll and healthcare, and the Obama Regime is raising both costs, thereby causing job cuts. Wholesale costs will rise from Obama inflationary policies. As the cost of employment rises, employment growth slows. Businesses would prefer to invest in employee education and training, so that employees would become more valuable to a company and eligible to earn higher wages. Businesses will not want to raise their prices by a similar percentage, as their services and products would become too expensive for some, including some who earn the new minimum wage. Those who earn more than the current minimum wage but less than $10 will become minimum wage earners again, a drop in status. Employees then earning closer to the new minimum wage will demand a raise also, heaping more additional costs on employers. Labor unions then will demand higher wages for their members. Employers might defer expanding their businesses, thereby halting new employment, and defer purchasing new equipment, which would add to their competitiveness and deserved raises for other employees. Consumer prices rise to cover higher labor costs, together with loss of markets to competitors. The cruel truth is that hiking the minimum wage hurts the people it intends to help, the unskilled poor and inexperienced youth. Overwhelming evidence proves that the black community suffers tremendously. In the 1950s, the black teen unemployment rate was the same as that for white teens. After years of steady increases in the level and coverage of the minimum wage, more than 40% of the black teen population is unemployed. Raising this wage makes work more attractive relative to school for some teens, who neglect their school work in exchange for working additional hours or drop out. Whole populations of minimum wage workers have disappeared. We no longer see movie ushers, gas station attendants, dishwashers, and some food service workers. Minimum wage hikes have made them unaffordable, and automation has replaced some. Minimum wage jobs show youth how to keep a job, learning promptness, respect, developing positive work habits and attitudes that will help them in future employment. Also, they gain self-respect and pride from their work and becoming financially partially-independent. Understand that many future professionals during training and acquisition of work skills work at wages that are much lower than what they will earn later, such as medical interns. In a free society, people must have the right to offer their services in the marketplace for whatever price they choose. In this way, productivity, wage rates, and prosperity become maximized. Liberal politicians have no right to object to a low wage for a menial job just as they have no right to object to a business offering a product at a low price. Such liberal intervention distorts marketplaces, misallocates resources, and destroys personal liberty. For example, WalMart abandoned plans to open 3 stores in D.C., after the city council voted to mandate a super minimum wage of $12.50 for only WalMart. Therefore, neighborhoods with poverty rates of 34% and unemployment rates of 17% lost jobs and cheaper groceries and other goods. Huge retailers like WalMart earn their profits by selling large quantities at lower profit margins. Forcing up labor costs cripples their narrow profit margin, making it unlikely that such stores will locate where they cannot find reasonable profits. These D.C. residents now must continue to spend money on transportation to reach stores in other areas and pay higher prices.
LIBERAL NONSENSE. Liberal politicians cannot magically change economic reality, though they try. They only cause economic malaise when trying to manipulate the economic reality, a strange message when our economy is still emerging from a recession. Liberals argue that government increasing the minimum wage will increase the earning power of all marginal employees, that employment is an exploitative relationship operated by employers who never will voluntarily raise worker wages. Therefore, government must coerce businesses to pay workers what they really deserve, an amount best known by liberal politicians. This thinking is contrary to basic economic principles and illogical. Wages actually rise from creation of new wealth because of greater productivity. Government itself cannot create wealth or produce anything; it only regulates and consumes. Liberals engage in minimum wage deception to buy votes from specific voter blocs, who themselves focus on their short-term personal gains rather than on long-term consequences for the country. Their own wages may increase, but other nameless victims will lose their jobs, priced out of the labor market. These people then burden taxpayers through unemployment compensation, welfare, food stamps, and job re-training programs.
TAKE ACTION NOW. Contact your Capitol Hill delegation to vote NO on raising the federal minimum wage. Conservatives must urge their House member and 2 senators to abolish the minimum wage, because it removes the bottom rung of the economic ladder by prohibiting the employing of those with low levels of marketable skills. Better to cut taxes on lower incomes. Because the cost of living varies tremendously among states, each state should decide if and at what level a minimum wage is necessary.
Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom, with express prior permission granted for its use by other groups in the NE Conservative Coalition Network. 1-14. C
[1] Economist Douglas Adie.