Are we nearing the tipping point on minimum wage?
Tuesday, December 6, 2011
In January, Washington’s minimum wage will crack the $9 mark and we will once again be No. 1 — the state with the nation’s highest minimum wage.
Of course, some think that’s good news. Ensuring that people can support themselves and their families is a laudable goal. But there’s a problem: It’s called the law of unintended consequences.
Sometimes, an action causes the opposite of what it was intended to do. We are perilously close to that when it comes to the minimum wage.
Requiring that employers pay a higher wage does not magically provide them with the money to do so. With our state’s economy faltering and unemployment above nine percent, adding more costs to employers, especially small businesses teetering on the brink, doesn’t create more jobs.
In fact, it may do just the opposite.
As economics professor and author Dr. Bradley Schiller recently wrote in The Wall Street Journal, “The overwhelming evidence is that higher minimum wages reduce the availability of jobs at the lowest end of the job market.”
We need to have a full and open discussion of this important issue. Unfortunately, anyone who dares challenge the notion of hiking the minimum wage is branded as heartless and any politician who even suggests looking at the minimum wage is attacked as anti-worker.
While that may be effective electioneering, it doesn’t help put people to work nor does it help struggling employers.
As our minimum wage is set to automatically increase to $9.04 for 2012 — with $10 on the horizon — we may be approaching a tipping point where employers stop hiring. This would be particularly hard on young or unskilled workers. After all, why pay a beginner $10 per hour when experienced workers are unemployed?
And the wage itself is just the beginning. After adding in the other employer costs such as unemployment, workers’ compensation taxes, social security and other payroll costs, the out-of-pocket costs jump to over $11 an hour.
But as economist Thomas Sowell wrote, “Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage many workers receive...because they lose their jobs.”
Part of the debate over the minimum wage centers on its purpose. Some argue it must be high enough to support a family, while others point out that it’s meant to be a floor — a minimum — for unskilled people entering the job market. In his study of minimum wage jobs over time, Dr. Schiller found that most adults work at minimum wage jobs only a short time; that over 70 percent had moved onto higher paying jobs within two years.
My view of the minimum wage is shaped by my personal experience.
In the summer of 1963, I bused tables, scrubbed pots and peeled potatoes at a family-owned restaurant and bar in Butte for minimum wage — $1 an hour. The dad was the greeter and bartender, the mom was the cook and bookkeeper. The oldest son was the afternoon shift cook and a daughter worked as a waitress.
More than once — usually around tax time — the mom told me my $20 pay would be delayed and asked that I trust them for the money. They always made good on my pay, but it was a struggle for them, especially when times were bad and costs increased.
Eventually, they hit a tipping point. When they could no longer absorb additional costs they lost their business.
When the restaurant shut its doors, there were no newspaper headlines, no press conferences, no political debates. Only a simple sign on the door that said, “Closed.”
Don Brunell is the president of the Association of Washington Business. Formed in 1904, the Association of Washington Business is Washington’s oldest and largest statewide business association, and includes more than 7,600 members representing 650,000 employees. AWB serves as both the state’s chamber of commerce and the manufacturing and technology association. For more about AWB, visit www.awb.org.