Several months ago, Harvard was beset upon by a group of student activists demanding higher wages for the university’s janitors and service workers. The students concluded that the minimum “living wage” at Harvard should be $10.25 an hour. Other areas of the country are also carrying the torch for a minimum living wage.
This issue is directly related to upcoming debates about raising the national minimum wage. This is a difficult and divisive issue, and it deserves some consideration.
First, we shall venture into the realm of economics to see what impact raising the minimum wage has on the country. All increased costs must be absorbed somehow. Either there is an increase in productivity that offsets the higher cost or it is added to the product price and borne by the consumer. Thus, if no increase in productivity attends the additional cost, it is passed on to society in the form of higher prices.
In society, there is always a group on the bottom wrung of the economic ladder. They arrive and remain there due to either a lack of skills or motivation. From a business standpoint, their contribution does not warrant more than subsistence wages. Their bargaining power is minimal.
In an ideal world, business could be trusted to care for the needs of workers and no artificial standards would be needed. Unfortunately, history does not indicate this to be the case. Sadly, business has looked upon those at the bottom of the economic spectrum as expendable and their services are valued at the lowest cost possible.
The result would be inflationary since no increase in productivity would occur. Further, raising the minimum would make relocating jobs to Mexico more attractive. The margin for keeping low-skill manufacturing work in the U.S. is already razor thin. The total cost would be more than just increasing the wages of those at the bottom since many workers’ wages are maintained at a dollar or two dollars above minimum wage.
Increasing the minimum wage is anti-motivational. Why should a worker try to improve the value of his services if wages are increased anyway?
On the other hand, the plight of the lowest paid would be enhanced by increasing their take-home pay. It is very difficult to subsist oneself earning only the minimum wage. Those with families and thereby qualifying for the earned income tax credit get some relief, but their situation is still dismal.
Former Gov. William Winter often remarks that the road out of poverty leads by the schoolhouse. He is correct.
By business subsidizing poor workers, no permanent improvement is achieved. It is only through acquiring education and skills that anyone has a chance to rise above their circumstances and arrive in the middle class.
The breakdown of the family unit is a major culprit in keeping those on the bottom on the bottom. Children from broken, frequently fatherless homes, are likely to be raised in poverty and to remain there throughout their lives. Public education badly needs competitive pressures to improve performance. Mentoring poor youngsters can help them establish a middle class vision for themselves and encourage them to rise out of poverty.
So, should we raise the minimum wage? I don’t think so. If society is to bear the burden of increased labor cost through price inflation anyway, they might as well get hit directly. Better to revamp the earned income tax credit system to subsidize poor workers than to shift the responsibility to business.
The burden of minimum wage increases falls disproportionately within the business community. Some companies have a high proportion of employees on the bottom wrung, others have very few, or none at all. Additionally, some areas of the country, such as ours, have more minimum wage workers as a percentage of the population and increasing the earned income credit would spread the cost more equitably across the country.
Reality is that some marginal manufacturing operations will be relocated to Mexico if the minimum wage is increased. Decreasing our manufacturing base is decidedly against Mississippi’s best interest. In fact, we can’t withstand the loss of anymore manufacturing jobs and still hope to realize the dream of increasing per capita income.
Wages should be based on a worker’s contribution to the organization. If that contribution is unacceptably low, workers should enhance their value and move up to higher paying jobs. It’s the American way.
Thought for the Moment — Real charity doesn’t care if it’s deductible or not.
— Author unknown
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.