THE MINIMUM WAGE VISION
There are decent people, without a selfish hidden agenda, who support increases
in minimum wages as a means to help low-skilled workers, and there are other
decent people, with the identical goal, who strongly oppose increases in the
minimum wage. So the question is: How can people who share the same goals, helping
low-skilled workers, come up with polar opposite means that produce polar opposite
results?
It all depends on one's initial premise. It would do us some good to make our
initial premises explicit and check them against reality. One initial premise
is that an employer needs a certain number of workers to accomplish a given
task. That being the case, increasing the minimum wage simply means that all
low-skilled workers will enjoy a higher salary and employers will have lower
profits and/or customers will pay higher prices. With this vision of how the
world operates, the logic of increasing the minimum wage as a means of helping
low-skilled workers is impeccable.
Another initial premise is that there is no fixed number of workers necessary
to accomplish a given task. Employers might be able to substitute capital for
labor such as using dishwashing machines instead of dishwashers, automatic elevators
instead of elevator operators, self-service gasoline stations rather than full-service
gasoline stations, online reservations rather than reservation clerks or relocating
their operation overseas. People who share this initial premise can still have
concern for the welfare of low-skilled workers but argue that increasing minimum
wages will cause unemployment for some of them and deny job opportunities for
others. Given their initial premise, the logic of their argument is also impeccable.
Thus, the question to decide is which initial premise best describes how the
world operates. Is it the one that says there's a fixed number of workers necessary
to perform a given task, or the one that says employers have flexibility in
the mix of workers and capital they use and where in the world they can choose
to manufacture? I think the latter description more properly describes how the
world operates.
Place yourself in the position of an employer and ask: If a worker costs me,
say, $7 in wages, plus mandated fringes such as Social Security, unemployment
compensation, sick and vacation leave, making the true hourly cost of hiring
a worker $9 an hour, does it pay me to hire a worker who's so unfortunate to
have skills that enable him to produce only $5 or $6 worth of value per hour?
Most employers would conclude that doing so would be a losing economic proposition.
There are a couple other villains in the piece that force employers to respond
to increases in wages that exceed a worker's productivity. If he did hire such
workers, he would earn lower profits. Soon, investors would abandon him and
put their money where returns are higher.
There's another villain -- the customer. If the employer retained workers whose
wages exceeded their productivity, to cover his costs he would have to charge
you and me higher product or service prices. I don't know about you, but I prefer
lower prices to higher prices, and I'd switch my patronage to those firms who
adjusted to the higher labor cost.
Congress can easily mandate higher wages, but they cannot mandate higher worker
productivity or that employers hire a particular worker in the first place.
Those of us who truly care about the welfare of low-skilled workers should focus
our energies on helping them to become more productive, and a good start would
be to do something about the rotten education that many receive.