Letter - Raising minimum wage hurts the economy

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Not wanting to fight the election of 2014 defending the Affordable Care Act, President Obama has decided to attack on another front by advocating an increase in the minimum wage.

Claiming he wants to create jobs, he is once again pursuing a policy that destroys them. Excessive regulation, tax policy, and the Affordable Care Act itself, all belong to the same genre.

Increasing the minimum wage benefits one group of workers (those who keep their jobs) at the expense of another (those who lose theirs.) The latter group typically includes the unskilled, particularly teenagers and African-Americans. Let down by the school system, their only hope is on-the-job training.

There is a certain exquisite irony here. The generation that voted overwhelmingly for Obama, already forced to buy health insurance that it did not want, will now find it more difficult to obtain that all-important first job.

A preview was provided when SeaTac raised the city’s minimum wage to $15 per hour. Not only were jobs lost because a hotel closed its restaurants, but new jobs will not be created in a previously planned hotel that will not be built.

President Reagan, concerned about a minimum-wage law inherited from Carter, did not want to expend political capital repealing it, and tried to mitigate its effects by keeping it unchanged.

His economic policies caused the market wage to rise above the minimum wage, and fast-food chains reported that they had to pay above the minimum to attract enough help. The teenage unemployment rate was close to the overall rate. The law had become redundant.

But it remained there, a ticking time bomb waiting to explode. And explode it did.

In 2008, just as the economy entered the deepest recession since World War II, causing the market wage to plummet, the Democrats permitted the minimum wage to rise, and unemployment among teenagers and African-Americans soared.

Obama is using the same playbook as the one used for, “If you like your plan, you can keep it.”

We hear an increase in the minimum wage would reduce unemployment. It increases it. We hear it would reduce income inequality. Those who keep their jobs are better off, while those who lose theirs are worse off. It does the opposite.

Believers in free markets and limited government must be forceful in pressing these arguments.

Ironically, bad economics sometimes makes good politics, and 63 percent of the electorate believes the minimum wage should be increased.

Gordon Philpot

Walla Walla

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Comments

Igor says...

Great letter! I don't think that there's a respectable economist on either side of the political spectrum that disagrees with you. The puzzlement is how politicians can continue to score points with this nonsense. As you observe, raising the minimum wage hurts the poorest and most vulnerable members of our society. The fact that 63% of the electorate supports minimum wage laws show just how ignorant and poorly educated we are. Downright frightening.

Posted 26 January 2014, 5:36 p.m. Suggest removal

MyFamNews says...

Igor: How do you explain that our state has the highest minimum wage and our unemployment rate is lower than the national average. These same arguments were made every time our state minimum wage was up for discussion. I'm not sure your theory holds water, however, I'm not an economist.

Posted 27 January 2014, 4:14 p.m. Suggest removal

PearlY says...

First, according to the BLS, our unemployment rate is NOT significantly different from the national average. But if it were, an alternative explanation would be loss in labor force participation rates. Washington's labor force participation rates were historically (over the past several decades) higher than the national average and growing faster, but the last few years have seen not just a slowing of the rate of growth, but an actual drop in participation rates. A second explanation is that Washington has a smaller than average minimum wage population, making the employment loss effects of a minimum wage increase hard to tease out from the overall employment picture.

Posted 30 January 2014, 7:30 a.m. Suggest removal

Igor says...

MyFamNews,

Good retort! I’m not an economist either so I’ll defer to Dr. Philpot on your question. But don’t hold your breath because he’s not a blogger. That said, I did major in Econ and took classes in Price Theory, Income Theory, Money and Banking, History of Economic Thought, etc. Plus I continue to read as much on the subject as time allows.

The problem with the field of economics is that, as with all social sciences, politics tends to rear its ugly head far too often. But even the hard sciences are not immune from this problem. Witness the debate over “climate change,” fka “global warming.” Nevertheless, I continue to believe that the truth is out there somewhere.

A wag once said, “Economics is the only field in which two people can share a Nobel Prize for saying opposing things.” True, I suppose, but there are some things that most economists apparently do agree on and one of them, as explained by Dr. Philpot, is the negative socio-economic impacts of minimum wage laws.

Though I certainly cannot speak for Dr. Philpot, I suspect that he might tell us that without the Washington State minimum wage, unemployment would be even lower in our Evergreen State than it is presently. In any event, that’s what I believe. Can I prove it? No more than the Left can prove that the recession would have been even worse but for Obama’s “shovel ready” stimulus.

The Right and the Left are still fighting the Keynes v. Hayek battle. Though I’ve not read The General Theory, I’ve read enough about Keynes to know that he was anything but a socialist and would probably agree with Dr. Philpot on the negative impacts of minimum wage laws.

Posted 27 January 2014, 9:44 p.m. Suggest removal

chicoli says...

Some comments about raising the minimum wage:

1. It is the humane, moral and decent thing to do.
2. That salary money will be churned into the economy at large inmediately.
3. Employers will develop a culture of loyalty and better productivity from appreciative employees.
4. The unemployment rate will be lower, as stated by MyFanNews above.
5. The overhead expense from the raise in wage will certainly be a tax deductible expense for the company.
6. There is at least one succesfull Walla Walla CEO who voluntarily increased the minimum wage for his employees. His business has duplicated the workforce since its foundation. Instead of a Mercedes he drives a brand new American car...but that's OK!
7. Happy talented employees will stay in town, will not migrate somewhere else.
8. CEO's still can have their fat bonuses, but a bit lighter ones...but their sleep will certainly improved.

Again, improving the lives of others is the benevolent thing to do. It helps all of us as a community and makes all us better human beings.

Posted 28 January 2014, 5:35 a.m. Suggest removal

wwguy7 says...

Again, this is all theory. These may all be great in NY City, but not WW. We have how many major corporations here? Key Tech and Nelson Irrigation? A majority of our commerce is found through small busiess. What will these smaller guys do with a higher minimum wage? They will lay people off and work harder themselves. It's common sense. Again, on a massive corporate level, all of your points may hold true. Not in our little corner of the world though.

Posted 28 January 2014, 9:03 a.m. Suggest removal

bj84711 says...

The largest harm is to SMALL business, not large corporations so the CEO bonus argument does not apply.

Posted 28 January 2014, 10:02 a.m. Suggest removal

PearlY says...

1. It's "humane, moral and decent" to throw more people out of work, especially young people whose unemployment rate is already in the double digits? Half of all minimum wage workers are under age 25.
2. "That salary money" doesn't get pulled out of a mattress; it gets taken from the employees who are laid off. Most businesses, especially service businesses where most minimum wage employees work, have a limit on the amount they can pay in labor costs: exceed that, and lay-offs must happen or the business will shut its doors.
3. Employees never "appreciate" getting paid minimum wage, no matter what that number is. But many minimum wage workers receive additional compensation (tips or commissions) that raise their overall pay well above minimum wage. They especially won't appreciate losing their jobs so that the minimum wage can be raised.
4. And having repealed the basic law of economics, why not tackle the law of gravity?
5. Assuming you have a profit, labor costs are deductible. But if you can't lay off enough employees to make up for the higher minimum wage, you won't have a profit. And if you can, your labor costs will remain steady overall, so no change in taxes.
6. Employers raise wages all the time. If you do it voluntarily, then it isn't a "minimum wage" because that refers only to the wage mandated by government.
7. If the minimum wage is raised nation-wide or state-wide, it can have no effect on employment migration.
8. Most CEOs who get "fat bonuses" are not in industries that employ minimum wage workers. Minimum wage workers make up less than 3% of the labor force. Except for a few large chains, most of the "CEOs" whose bonuses will "lighten" are people who own establishments like our local Mom & Pop restaurants. Except when they're worrying about going broke, they're tired enough to sleep quite well already.

Baking a bigger pie helps our community. Dividing up the same pie a little differently helps some people and hurts others. It's only "benevolent" insofar as you like the people helped and don't like the people hurt.

Posted 30 January 2014, 7:13 a.m. Suggest removal

chicoli says...

Pearl, this is what my friend, who owns a small business in WW tells me: " It gives me real pleasure to pay my employees a bit more than minimun entry wage and better than average salary. I attend their childrens graduations, and when they go to college I fell I've contributed to their better future, therefore to our better community. I've been adding, not only to my personal welth, but to my spiritual welth. They are loyal to me, and all of our team is loyal to our customers. When someone in our "family" is in a bad predicament, all of us fell the pain. When all of us are fine in that life is good, all of us just smile, and giggle together. It just does not get any better than this" Obviously I'm paraphrasing...hopefully you'll get the jist of it!

Posted 30 January 2014, 10:51 a.m. Suggest removal

PearlY says...

Paco, when I had employees, I also felt that I contributed to their better future. The ending wage for my last employee was $28 an hour, and in 37 years of running a business, I always paid well above minimum wage.

What you are not understanding is that both your friend and I CHOSE to pay more than minimum wage and even more than generosity, needing quality employees was probably a major reason for both of us. But there are many jobs that do not require "quality" employees, and thank goodness, because there are plenty of what you could call "low-quality" people out there and they, too, do better in life with a job. They may be "low-quality" only because they're young and still learning the basics of work ethics, or they may be mentally or physically slow due to disabilities or age, or they may be unable or unwilling to be dependable, honest, or diligent, or they may just be folks who prefer to party all night and show up to work with little to offer but a bleary-eyed presence.

The higher the minimum wage, the harder it is for an employer to make any money on such employees, and therefore the fewer the jobs for them. Is it better for them or the taxpayers for them to live their lives on welfare, or is it better for them to hold a job, even if low-paying, that offers a chance to contribute what they can to the community, maintain their dignity, and lower the tab for the taxpayers.

Not everyone who works minimum wage is "low-quality" of course, especially during a long period of recession or slow-growth such as we've had, but to be blunt, the majority are, even if only temporarily. My first job was minimum wage and I'm just grateful it was there, and taught me the basics of showing up to work on time, following rules, etc.

Posted 30 January 2014, 1:28 p.m. Suggest removal

chicoli says...

After 37 years of practice you are considerably more experienced on these matters than all of us. I must admit that basically I agree with you on almost all of your points. Without ignoring the politicoeconomical fundamentals I'm still glad we were able to dig into the humane and moral dimesion of this key aspect of our society.

I've seen many cases of "low quality" employees blossom under a well managed mentoring program. Indeed responsibility, adherance to rules and punctuality are teachable virtues; and such virtues are unambiguously in the domain of liberal ideas as well. Who on earth would reject such universal, desirable qualities?

Posted 30 January 2014, 9:33 p.m. Suggest removal

PearlY says...

There's a facility just North of town full of people who reject such qualities. Many (not all) should pay employers to hire them, rather than the other way around.

Posted 31 January 2014, 9:31 a.m. Suggest removal

chicoli says...

I know all about those guys at the facility north of town. As a VA physician I've volunteered there some time ago. I saw a lot of tatoos representing extremist supremacist, derogatory of women and other minorities. I saw a lot of mental patients who could've been better treated at a hospital. I was able to hear about the hopelessness of human beings, their lives tainted for the rest of their existance without a chance for a decent job in their future "free" lives. Surprisingly enough all political persuations are represented there, not just the now proverbial 47%!

Posted 31 January 2014, 10:18 a.m. Suggest removal

mspinks says...

Minimum wage is and always has been linked to entry level jobs for HIGH SCHOOL KIDS. From these jobs, they learn new skill sets and experiences which can lead them to better jobs and better pay.

Posted 28 January 2014, 7:13 a.m. Suggest removal

tpeacock says...

30 or 40 years ago yes. Next time your out at Wal-Mart, or stop in at McD's, check out how many 30-40 year old folks are working there, and not in management. The Times have changed, what once were entry level jobs are now what many people have for a regular job.

Posted 29 January 2014, 4:15 p.m. Suggest removal

mspinks says...

And that's their choice to work at Wal-Mart or McDonald's, but those business owners shouldn't have to pay them more just because they are 30-40 years old.

Posted 29 January 2014, 5:02 p.m. Suggest removal

kurtfr says...

I agree. Good business practice is to pay as little as possible and pass additional costs onto others. I applaud Wal-Mart and McDonald's in passing the costs of making up differences in what they pay to what it costs to live onto the tax payers.

Posted 29 January 2014, 6:07 p.m. Suggest removal

PearlY says...

That last sentence is ridiculous. Wal-Mart and McDonald's business model depends on low-wage employment of unskilled high turnover and transitional workers, and a certain proportion of the population will always be such people. That model produces low-priced products that could not be produced at all if wages were higher. If that model were abolished, Wal-Mart and McDonald's would quickly disappear. That would not improve the lot of the population they employ. It would render them permanently unemployable, costing the taxpayers far more, while eliminating the low-priced products, also hurting consumers.

Posted 30 January 2014, 7:39 a.m. Suggest removal

tpeacock says...

I did not state that nor was that my point. Having worked at a wide range of pay scales over the years I have plenty of first hand knowledge of making it on minimum wage. There was a time when a married couple could afford to have just one person working, but that went out the window 20 years or more ago.
Plain and simple, wages have not increased on an equal basis as have living costs. The last person I worked for that paid me a considerably low wage for the career field I was in found it more important to but himself a BMW than to raise my wage to a pre agreed level. While this is but one example, I see this all the time and though I would never relegate every small business to his sort of practice, the minimum wage in many states is paltry and difficult for anyone to live on.
I am a small business owner as of early last year, and though I have no employees as of yet, I know when the time comes that I need to hire someone, I will certainly be able to afford more than even this states minimum. Again, I know there are many different circumstances out there, but this never ending wagging about any increase to minimum wage forcing small business out of business, or forcing layoffs, or not being able to hire new employees is akin to weather forecasting or crystal ball gazing.

Posted 30 January 2014, 6:44 p.m. Suggest removal

mspinks says...

Hats off to you for starting a business. Come back and report to us how things are going after hiring your first employee. Hopefully you'll make a lot of money and will be able to hire more. But if things turn south and you are barely keeping the doors open, I wonder if you would then appreciate being told you need to pay more in payroll costs. And if you are...can you afford to keep that employee? Raising the price of your services or products certainly won't drive customers to your business. And on a side note....minimum wage was never designed to live on.

Posted 31 January 2014, 7:12 a.m. Suggest removal

MyFamNews says...

Many people think teenagers in part-time employment are the only minimum wage earners. The reality is that the average age of minimum-wage workers is 35, the majority of impacted employees work full time, and almost 90 percent are over the age of 20. More than a quarter of minimum wage workers have children and 55 percent are women, even though women make up less than 50 percent of the workforce. The Economic Policy Institute in Washington D.C. estimates that a phased-in increase in the national minimum wage to $10.10 in 2016 would directly or indirectly raise the wages of almost 28 million workers. This would also be sufficient to raise a family of three, with a full-time minimum wage worker, out of poverty.

Posted 1 February 2014, 7:48 a.m. Suggest removal

mspinks says...

If the economy wasn't so piss poor and the unemployment rate so high, then people wouldn't be forced to take the jobs that normally go to high school kids. Respect to those for wanting to continue to provide for their families, but a business should not have to provide for the income gap. And where do you draw the line for what the minimum wage (not "living wage" as some want to call it) should be? $20 an hour? $25? $30?

Posted 1 February 2014, 12:43 p.m. Suggest removal

PearlY says...

Funny how young people are children still dependent on their parents until age 26 for insurance purposes, but are adults supporting families of three for purposes of needing a "living wage" years earlier.

Fewer than 5 million workers currently earn minimum wage or below, so if an increase to $10.10 would raise the wages of 28 million workers, than implies that more than 23 million currently earn less than $10.10.

Twenty years ago, due to EPA regulations, we lost thousands of small independent gas stations across the country; only the big companies were able to cope with the new regulatory climate. Most people today don't remember the convenience of having a gas station within a trivial distance of one's home.

Years from now, our grandchildren will not even realize how much convenience, diversity and savings, not to mention jobs, have been lost in our society as we drive small independent restaurants, theaters, motels, retail establishments, etc. out of business with minimum wage hikes. And the same people who cause this to happen are the ones who will complain the loudest that "big corporations" are running America.

Posted 1 February 2014, 1:53 p.m. Suggest removal

kurtfr says...

I'm happy to support low wage workers at places like McDonald's and Wal-Mart by coughing up my part in the $7billion/year of taxpayer money that goes to them because their employers don't pay a living wage.

http://www.washingtonpost.com/busines...

Posted 29 January 2014, 6:07 a.m. Suggest removal

PeggyJoy says...

And who complains the most about our National Debt? The people contributing to the rise like the Walton family (Walmart), that encourage their employees to apply for food stamps. The same family, where each member is worth BILLIONS. Mostly like they come up with plenty of "write-offs," so they don't pay a cent of taxes.

Posted 10 February 2014, 9:54 a.m. Suggest removal

PeggyJoy says...

This should be looked at in another way. If you cannot afford to pay a person a livable wage, where they can provide food and shelter for their family, without using food stamps, etc., then you shouldn't be in business. Think about it. Why did "you" start your own business? More than likely you were fed up with receiving low-wages.

Posted 10 February 2014, 9:48 a.m. Suggest removal

NewInWW says...

The author of the original letter assumes the result that is the basis for his entire letter - that increasing the minimum wage results in job loss - while the data simply aren't that clear. Yes, microeconomics predicts a loss of jobs as wages increase. What microeconomics fails to address is the impact of higher wages for workers who will spend virtually every cent they get on the overall economy. As demand for food, housing, transportation, entertainment, etc. rises, those predicted "lost jobs" often times aren't lost at all.

If we really want to improve the economy, the solution would be to reduce the obscene amounts paid very senior management at our largest companies, and increase the wages of the bottom 20%. Germany, Australia, Great Britain, Japan, Sweden, France all manage to get by with CEO to worker pay ratios of 150:1 or less; often much less. In the US that ratio is 350:1. I suggest an easy step - allow corporations to pay their CEOs as much as they want, but don't allow them to deduct any more than 100:1 for tax purposes. - which might help, if the corporation were actually a taxpayer.

Posted 11 February 2014, 11:59 a.m. Suggest removal

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