The Reality of the Minimum Wage Debate

A mob of 1,000 leftists recently “occupied” the headquarters of McDonald’s in Illinois demanding an increase in the minimum wage to $15 an hour. This increase is supposed to create higher standards of living for workers. But raising the minimum wage ultimately harms workers as all of socialism ultimately does. Here’s how:

First the minimum wage applies to only about 3.5% of the American workforce, or roughly 5 million workers people out of 140 million workers. Many minimum wage earners are young people like teenagers just entering the workforce. It is in general an entry-level or “starting” wage and is also for low-skill or no-skill jobs like mopping floors or punching in orders on a computer screen. Meanwhile millions of successful businesses don’t even have minimum wage workers because it is worth it to the business owner to pay more for good workers with skills and education to do more complex jobs.

Now consider an average minimum wage of $8 an hour, which is fairly standard across the nation. The federally mandated minimum wage today is $7.25 and many states have a higher minimum.

So an employee who works the standard 2,000 hours per year (50 weeks at 40 hours a week) earns $16,000 a year at $8 an hour. Subtract 7.65% for the Social Security/Medicare deduction and that worker can take home $14,800 a year since most workers at that level pay little or nothing in federal or state taxes. That $14,800 is decent pay for someone who is just starting out, who has done little or nothing to improve themselves, or who has a job that does not require much thinking or skill.

On $14,800 a year an individual can pay $700 a month rent (zero rent for teenagers living with their parents), buy a year’s worth of groceries, and then have $4,400 left over for clothes, gasoline, transportation etc. You will never be rich but you can survive just fine. Two minimum wage workers in a household can have a decent living standard on almost $30,000 in take-home pay. They can even have amenities like cable TV and air conditioning. In low-cost rural areas they can live even better.

Yet Democrats and socialists claim over and over that people cannot survive on the minimum wage. That is false. And now a Democrat from Massachusetts, US Senator Elizabeth Warren, even is claiming that the minimum wage should be $22 an hour and she cites a college professor who somehow calculated $22 using his own figures, which are always cooked by these professors to glorify wealth redistribution and socialism.

Yet if the minimum wage went to $22 an hour the American economy would suffer serious consequences as it already has suffered for millions of Americans under Obama. At $22 an hour many millions of jobs would be wiped out immediately because raising the minimum wage always leads to job losses – it is a statistical fact – while a big increase would lead to big job losses, perhaps 10 million jobs wiped out, maybe many more.

Meanwhile an effort to raise the federal minimum wage to $10.10 an hour recently failed. Good. The government should stay out of this debate. Businesses should decide how much to pay their employees.

Now consider what raising the minimum wage really does – it is simply a piece of legislation concocted by politicians that gives one group of people (minimum wage earners) more money at the expense of other people (business owners) while a third group takes credit (the politicians who advocate the minimum wage increase).

So how about if all of us conservatives and Republicans get together and pass legislation that all people in rural America, who generally vote Republican, should earn $22 an hour and that it should be taken out of the paychecks of liberals in urban America. Gee, that would be easy, wouldn’t it? And it would help “our” Republican voters. So now you see clearly why liberals are always demanding an increase in the minimum wage; it is simply a shift in wealth that benefits liberals at the expense of businesses.

Now here is a test to determine if the minimum wage is the right amount to pay: If a worker protests his minimum wage and demands more money but the business owner does not think that the job or the worker is worth more money, then the business owner should advertise the job at the same minimum wage. If the business owner gets acceptable applicants for the job at the minimum wage then the protesting worker should be fired and the job given to a new employee. If the job has no acceptable applicants at the minimum wage then the worker should be given a raise.

This way the free, capitalist market is naturally determining if the minimum wage is adequate. Because if the protester’s job can be filled by another person at the minimum wage then that is all that the job is worth, because there are other people who will do that job for the minimum wage, i.e., the supply of labor meets the demand. It is a very simple and direct process.

And today if any business, including McDonald’s, advertises virtually any job at the minimum wage the business will find dozens or hundreds of applicants because Obama has thrown so many millions out of work and people are desperate for any type of job. Indeed it is the lousy economy that has suppressed wages, not the free market.

Back in the early 2000s when I, Nikitas, was managing a music store the economy was so strong in our area and there were so few workers available that we had to pay a temp agency a high premium price of twice the minimum wage to hire a few extra workers to do some jobs. We could not find workers even though the store was paying more than the minimum wage and offering health insurance and other benefits. So this is evidence yet again that a strong economy is the best natural solution to help lower-income workers, not an artificial transfer of wealth.

Then you must remember that an increase in the minimum wage does not mean an increase just for minimum-wage workers. This is the time bomb that is built into the theories of socialists like Elizabeth Warren. Here is why: Imagine that you have 100 employees.

Let’s say that 7 of them make the minimum wage of $8 an hour and that the remaining 93 employees make anywhere from $8.50 an hour up to $14.75 an hour. Then imagine that the government mandates that you must pay a minimum wage of $15 an hour, which the McDonald’s mob was demanding.

This means that everyone in your workforce – all 100 people – would have to get a raise to at least $15 an hour, not just the minimum wage workers, because $15 would be the new “minimum wage”. Because ultimately minimum wage increases are a way for socialists to artificially push up wages for all workers at the expense of business.

This would set off a huge increase in labor costs for your company. This could bankrupt millions of small businesses that operate on tiny profit margins, and this is how socialists seek to undermine and control the private economy with draconian proposals like a minimum wage of $15 an hour or, heaven forbid, $22 an hour. It will crush the private economy, making it ripe for a taxpayer bailout and government control as in the case of General Motors and Chrysler.

Then don’t forget the psychological effect on your work force. People who were making $14.75 an hour before the increase – or $6.75 an hour more than the minimum wage of $8 an hour – are going to want $20 an hour or more after the increase because they are “worth much more than the minimum wage”. This will set off a whole round of new wage demands.

Many small businesses would have to immediately fire some or many workers because they could never afford to keep them on the payroll at $15. This represents the job losses that always accompany increases in the minimum wage. Or businesses might end up denying pay raises to people higher up in order to pay those increases lower down, angering your more skilled, valuable and long-term employees and perhaps inducing them to look elsewhere where they can make more money. This also will harm your business. Thus the minimum wage increase is a secret way for the socialists to upset your private business with government intervention.

Another side effect of minimum wage increases is automation. If the minimum wage goes up too much employers like McDonald’s might simply replace minimum-wage order-takers at the counter with computers because it would be cheaper. Customers would simply enter their own order on the screen, completely eliminating the order-taker job. This is another way that minimum wage increases lead to job losses.

In addition, if McDonald’s had to pay everyone at least $15 an hour that would produce another major negative side effect of higher prices. Since McDonald’s is a low-cost “fast food” provider that operates on high volume and tiny profit per burger, any big increase in wages would have to be passed on to consumers as an increase in prices. This would harm the company’s business.

Here is the best way for business to operate: Business owners should pay their workers whatever they see fit. The government should never set wages or prices. Even George Washington said that.

These artificial demands for more money are the reason that so many unionized companies all over America in the post-World War II era were driven out of business – because the unions were demanding so much money that the companies could not afford to stay in business, even in the booming economy. That is one of the principal reasons that many of the freight railroads went bankrupt in the 1960s; why the steel industry collapsed in the 1970s; and why many hundreds of other businesses both large and small went out of existence. As recently as Autumn 2012 struggling Hostess Bakeries finally shut down when a strike by 5,000 workers pushed it over the economic edge. A total of 18,000 people ultimately lost their jobs.

This is also why the American car makers started to move jobs overseas as far back as the 1960s and 1970s and why Chrysler and General Motors needed to be bailed out. In 2009, when they were bailed out by Obama the average low-skilled, unionized assembly-line worker at Chrysler/GM was earning $73 an hour in wages, benefits and pension, according to Forbes magazine. Today, with inflation and union demands that would be more than $80 an hour.

No wonder they went broke. And today GM/Chrysler generally make lousy cars, so in effect their inferior product and their demanding unions have both been propped up by the taxpayer. Meanwhile non-union “transplant” car factories in the American South owned by foreign corporations (Toyota, Kia, Hyundai, Mercedes, BMW etc.) are thriving and making better products while paying their workers about 65% of the wages, benefits and pensions of the unionized workers at GM/Chrysler. Most importantly they have manageable labor costs and are not going to go bankrupt or need bailouts or have ongoing labor strife. Their workers do not even want the unions because those workers know that unions could get them higher wages in the short run but ultimately that unions harm both workers and their companies in the long run.

So how are workers better off if a company goes out of business? Well, the socialist theory never accounts for that hugely negative outcome which literally has thrown millions of American workers overboard in the last 60 years.

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