Minimum Wage Goes to $7.25 Tomorrow

By Hootsbuddy

When I scan the headlines about tomorrow's increase in the minimum wage very few actually print the new amount.  Historically with every increase there is a lot of discussion about the economics involved, whether or not it's good for business or will hurt this or that statistic. Seldom do I find serious consideration for what it means to those who depend on changes in federal regulations for the rare increases they get. As one writer said, we all have sufficient fortitude to bear the misfortunes of others. We like to discuss such topics with wise detachment in the same way that those with good health care see few problems with the system.

During thirty-plus years as a manager in the food business I spent more time than I like to recall deciding how best to split tiny budgets into fractional raises for people who lived their lives just above the legally required minimum wage. Sometimes workers with several years' experience received a tiny increase reflecting time on the job so that the new minimum didn't leave them working side by side with others just hired.

I learned to run the numbers. What is a quarter worth? Twenty-five cents an hour is ten dollars a week which is over five hundred dollars a year. If you are thirty years away from retirement that comes out to fifteen thousand dollars of the company's future income pledged to that quarter raise, not counting what additional increases you may also receive in years to come.

Sounds great, no? What it leaves out is that the first seven and a half cents of every dollar is never seen, payroll taxes not subject to a "tax return" like the tax you pay by earning more than some multiple of the federal poverty level. Also, no one talks much about inflation any more, but a lot of smart people today are predicting serious inflation for the future because that's what happens when the money supply inflates (hello) by a factor of two. As a reminder, inflation devalues any money you may have while increasing the costs of what you buy.

Yes, I got really good at putting sugar on the message. Employees with twenty years on the job who still had not reached the average national wage (well over twice the minimum) sometimes thanked me for as little as a dime raise, knowing how tight the budget was. Early in my career I felt bad this time of year, but in time I got tougher. I learned to accept circumstances over which I had no control and do the best I could with what I had.

Last year I realized that any increase in the minimum wage is also a stimulus to the economy. I wrote a post to that effect which the reader may find here. After hearing the usual nostrums about wage increases hurting small business and leading to job losses this is contrarian thinking at it's most counter intuitive. But the more I thought about it, the more sense it makes. This year I put together a sequel, Minimum Wage as an Economic Stimulus -- Part Two, which develops the idea further.

...one way to stimulate the economy without more tax dollars is to poke employers for better pay for those at the bottom of the economic pyramid. And it is a pyramid, you know. Lots more people at the bottom than the top. As Lincoln said, "The Lord must have loved the common man, because he made so many of them."



Any time increasing the minimum wage is mentioned we hear the same old arguments. It makes no difference if times are good or times are bad. This is a concept that a certain population is pre-conditioned to oppose any time, any where, under any conditions. In Washington state, which already has the highest state minimum in the country, the CPI has triggered yet another increase to "8.55 an hour. I can hear screaming all the way to Georgia.


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We've heard it all before. But those who are opposed to the idea can't have it both ways. The unemployment figures are already in a dramatic decline with no end in sight until the end of the year at the soonest. Employees are already laying people off. The old job-loss argument doesn't hold water. Neither does the argument that lower market prices means that wages should go down, not up. Last time I checked, when prices are down, the way to make them go up is related more to supply and demand than production costs. Labor is a production cost, and all the cutting in the world won't compensate for a falling demand. As an old cafeteria guy, let me tell you about what self-service buffets can do to the cafeteria business, even if a la carte prices undercut the price points of meals at the food troughs. Cutting staff wages will not reverse market trends over which we have no control.



And at a time when laid-off, better paid bread winners are willing and able to do just about anything until they can find something better, increasing the minimum wage not only helps them keep from going further into the hole, but makes it less likely that they will leave for the next place that offers them ten cents more. Why? because even with a legally mandated minimum for employers that meet certain volume and staffing minimums, jobs will always be available for LESS than whatever the minimum happens to be. How else do ice cream and donut franchises employ kids for less than the minimum? As individually owned businesses with volumes under the defined amount, they are free to pay whatever THAT "labor market" will bear.

With most people worried about their own problems and the health care, er, health insurance reform taking the spotlight, I don't expect this post to get much attention. But I let the expectation stop me from posting that people might pause for a moment to think outside their box I would never have started blogging.

(As I was putting together this post the ;phrase "health care reform" got replaced by "health insurance reform." I have to admit it does sound less ominous. In fact, most people hate the notion of insurance almost as much as banks and lawyers. I don't know who started it, but it's a good move. Almost too little too late.)