Minimum Wage Hike No Panacea

AFL-CIO affiliate Working America and associated organizations are currently pursuing an effort to raise the minimum wage in Albuquerque from $7.50 an hour to $8.50. Unlike past hikes in the mandated wage, this proposal would also increase the wage annually to mirror the rate of inflation.

The cause of improving low-income workers living standards is surely a noble one, but the rationale behind the proposed wage hike is riddled with misconceptions concerning the economics of labor. Well-intended policies do not necessarily generate positive outcomes, rather unintended consequences are inevitable.

Consider the purported beneficiaries of a higher minimum wage. While often portrayed as single moms with children, the reality is that only about 20 percent of those currently earning the minimum wage in New Mexico are the breadwinners in families with children. More than 50 percent either live with their families, a spouse, or have some other family support structure in place to pay a majority of the bills.

Additionally, the average family income of families with a minimum-wage earner exceeds $55,000 and the median exceeds $43,000 annually. It is far more likely that a minimum wage earner is part of a family unit with higher-paid members than it is that they are using a minimum wage job to support a family. Even in that stereotypical situation, that family is not living on a minimum wage salary. There are dozens of programs including the Earned Income Tax Credit, food stamps, and Medicaid to help pay the bills and provide needed goods and services.

Roughly half of New Mexicans who are currently working at the minimum wage have either just recently entered the workforce or are working “odd jobs” for extra income. This is affirmed by data from the Census Bureau which shows that approximately half of all minimum wage workers are what might be called their “prime working years (26-65). The other half are aged 25 or less or are older than 65.

Of course, mandated wage laws overlook the fact that different people have different skills and do work that is worth more or less in the marketplace. These laws disregard this fact and force employers to pay higher prices for labor despite massive differences in quality. The increase in the price of labor inevitably forces employers to make tradeoffs. These can include demands for the increase of worker productivity, cutting or abolishing non-mandated fringe benefits, decreasing work hours, and the firing (or non-hiring) of low-productivity employees i.e. marginal workers who often consist of the working poor and teenagers.

Already, in today’s weak economy, New Mexico’s teen unemployment rate is 22.6 percent – a dramatic increase from 13.2 percent in 2002 (prior to the last Congressionally-mandated bump in the minimum wage and the recent economic downturn). Increasing Albuquerque’s minimum wage could push even more young people out of the work force entirely.

Laws which artificially raise the price of labor send signals to entrepreneurs who view such interventions as just one more obstacle placed upon starting a small business. It is reasonable to consider that a mandated price hike on labor may very well turn away individuals who would have otherwise proceeded with entering the market. Increasing the expenses associated with starting a business will not benefit the populace of Albuquerque, but instead create barriers to entry for the aspiring entrepreneur.

Raising the minimum wage rate in Albuquerque is not the correct solution to improve the city’s economy or help those struggling to get by. The answer is to provide an environment whereby businesses can operate free of undue and harmful regulations, where individuals are free to competitively pursue employment, and private entrepreneurs are given the freedom to actualize their ideas and create value within the society. Economic liberty, not the coercive actions of the state, is what is necessary for the citizens of Albuquerque to prosper.

Ben Sugg is a policy analyst with New Mexico’s Rio Grande Foundation. The Rio Grande Foundation is an independent, non-partisan, tax-exempt research and educational organization dedicated to promoting prosperity for New Mexico based on principles of limited government, economic freedom and individual responsibility.

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2 Replies to “Minimum Wage Hike No Panacea”

  1. It is interesting, although, shameful would be a more appropriate word, to describe the push to price-out our entry level youth and working poor from the marketplace.

    It speaks volumes about Unemployed America’s leadership, who are, or at least should be, well aware of the broader consequences of such policy enactments. Oh sure, you’ll have a lot of these folks who just don’t have the capacity to understand their own demands and actions…all sound, no substance. And, you can bet that there are those among them who completely understand, but who actually enjoy the idea of sticking it to the city’s youth and the working poor, while being cheered for it. But, it is shameful that those who do get it are nevertheless willing to rationalize it with the idea that a majority of those entry level workers who won’t get it, and would support the short-term distraction of that shinny dollar, will represent a proportional decrease of the total entry level employees, on a sliding inflationary adjusted basis.

    You have wonder about the current ratio of the city’s available entry level jobs to its potential population of qualifying entry level workers, and perhaps some comparison of past, present and projected future ratios…factored of course for fleeing small businesses.

    Initially, it certainly sounds like a great idea to receive that extra buck, alongside of some inflation adjustments, going forward, but what happens if that buck just isn’t available within the current or future economic environment?

    What happens if Mom and Pop’s Burger Shop can’t clear that additional buck expense per hour, per employee, per cost to produce that burger? What happens if Mom and Pop’s “regulars” choose not to pay that extra buck in the price of their burger? What happens if the combination of more printed money, more global competition, and more limited resources begins to show up as real and lasting inflation? What happens to the price of those pickles to go on that burger?

    • Awh, come on dude, that’s not Albuquerque…that can’t affect me…plus you should stay away from the red meat.

    Okay then, why not just raise the minimum wage to $20 per hour, right now? Why not?

    • Come on bro, you and I both know that those corporate fat cats can afford to fork it up.

    Look, homeslice, as far as I know, Goldman Sachs isn’t screening or hiring for minimum wage workers. So then, back to Mom and Pop’s Burgers, or Joe’s Barber Shop, or Sally’s Salon, or whatever…do you really think they will be able to afford to keep the kid around just to sweep up and eventually learn the register, at a higher minimum cost to them?

    I can tell you why they don’t just jack it up to $20, $30, $40, or even $50 per hour…it’s because they don’t want you to get it. They don’t want you to even think twice about the broader implications of their demands, or, that employers might not be able to afford them, last year, now or in the future.

    The truth is that when organized mobs, not free markets, demand higher wages without higher production and higher demand for products produced, potential employers can no longer afford to be generous with their jobs, or the training that takes place at those jobs.

    And when employers can no longer afford to be generous with their jobs, they get creative. And when employers get creative, folks who were once employed in the task of building U.S. automobiles get replaced by robots, or, folks who were once employed in the task of producing U.S. Steel get replaced by China.

    Don’t get replaced by robots…or China.

  2. Paul (et al):

    Ben Sugg essay was very much to the point.

    However, “minimum-wage” discussion has always had a fatal-flaw: traditional minimum wage-rate is almost always far below the actual “minimum” charged by the market. As such it’s pretty much irrelavant.

    In Santa Fe, however, “minimum wage” or “living wage” is currently about $10.50 and rising.

    This is a problem, since this rate is substantially above realistic entry-level wages, and, as such, disqualifies many young and minority workers from finding employment.

    As I’ve mentioned again and again, wage and price controls never work.


    John Onstad

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