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Sorting out the truth on minimum wage

As I See It

Bill Clinton and Company are desperately searching for a legacy other than having been impeached for moral misconduct. Items on the Clinton agenda include a patient bill of rights to protect the sick from the ravages of HMOs, confiscation of guns, knives and baseball bats, and increasing the minimum wage.

Just to be sure that his “record cleansing” isn’t to our detriment, I feel led to examine his legacy candidates to see if they make sense for the rest of us. Specifically, the subject for this week will be “is increasing the minimum wage a bad idea?”

Why increasing the minimum

wage might be a good idea…

At the current minimum wage rate of $5.15 per hour, a full-time employee would earn $10,712 per year before deductions. Assuming minimum deductions of 10% for Social Security, etc., our minimum wager would “take home” $803 per month. Left-leaners have long held that a person who works for minimum wage should make enough to survive. Can an individual survive on $803 per month? What if our minimum wager is head of a family of four?

Additionally, left-leaners hold that business is greedy and must be forced to “share the wealth” with employees other than CEOs. In their view, this decade has been one of unprecedented prosperity for business and it is time to divide up the loot with the lowest paid workers.

One proposal for increasing the minimum wage would exempt teenagers from the higher rate. The theory is that exempting teenagers would preserve jobs for youngsters while increasing the wage for adults. A caveat by Jones: would any crafty old profiteer ever think of replacing existing adult workers with kids to keep the lower rate? Just a thought.

The national job market is tight and likely to remain so for the foreseeable future. When a commodity (labor) is in short supply the price usually goes up. On the other hand, when supply is plentiful, the price declines. Increases in minimum wage never decline regardless of market conditions.

Well, it seems that the case for increasing the minimum wage is centered on sharing economic prosperity with the lower income workers just because it’s there.

Why increasing the minimum

wage might be a bad idea…

Despite efforts by the left to socialize our country, we still have a market economy. That means that matching supply and demand is a key to successfully managing a business. The justification for increasing cost should be an offsetting increase in productivity. Otherwise, the business suffers and is rendered less competitive when compared to similar businesses not subject to the same cost increase.

If we increase the minimum wage rate without an attendant increase in worker productivity, we become less competitive. All that stands between retaining or losing more minimum wage jobs to Mexico is the high cost of transporting raw materials and finished products. As we increase labor cost without increasing productivity, we make exporting jobs to Mexico increasingly attractive.

Conservatives have long contended that increasing minimum wage results in loss of jobs. Liberals say otherwise. Studies are inconclusive. Instinct tells me that there are some marginal jobs that are lost with each increase in minimum wage, but I doubt that it is very significant.

Well, should we or shouldn’t we?

We stand near the end of the greatest economic boom our country has experienced in a long time, maybe the greatest ever. A recession is just around the corner. When it comes, a substantial number of lower wage jobs will be lost, at least temporarily. If the minimum wage rate is increased, there will be more people put out of work than if it is not. I question the wisdom of placing additional cost pressure on the economy at this time. I think a better option would be to initiate a minimum wage increase near the beginning of the next economic recovery.

What do you think? I intend to debate some more of these Clinton “legacy issues” in the coming weeks and would like to know your views. Write or e-mail me and let me know what you think.

Thought for the Moment

Therefore, if anyone is in Christ, he is a new creation; the old has gone, the new has come.

— 2 Corinthians 5:17

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail address is cpajones@msbusiness.com.


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