Earlier his week, California paved the way for a $15/hour minimum wage, in a move that essentially communicated the following message: “..to hell with economics.”
The living wage issue is one of the most controversial debates playing out in America today and it goes right to the heart of partisan politics.
Anyone who’s “feeling the Bern” so to speak, believes they’re entitled to make enough flipping burgers to feed their family. And you know what? They’re wrong. Dead wrong.
Either, i) they don’t have the skill set they need to find a job that pays a decent wage, ii) they have other personal problems that keep them from securing gainful employment, or iii) the US economy has simply become a service sector, minimum wage job creation machine that severely limits job seekers’ opportunities and forever relegates the vast majority of society to the bottom of the pyramid in what is increasingly becoming a feudal system.
Note that our rather harsh assessment doesn’t actually put the blame on workers.
Sorry, but society doesn’t value a dollar menu cheeseburger as much as it values a porcelain cavity filling. So the guy (or girl) putting the burger in a bag makes $8/hour while the dentist makes $100. That doesn’t mean the burger flipper is “worth” less of a person than the dentist in metaphysical terms. Sure, sometimes the people handing you a Taco Bell bag at the drive-through might have spit in your burrito, but you know what? the dentist who fills your cavity might be having an affair with the hygienist who just cleaned your teeth. In the back of the office. Just before you signed in and got comfortable in the chair.
The point is that what’s missing in this equation are the breadwinner, skilled labor jobs that allow everyday people who i) have attained a decent education and acquired a skill that’s useful to society, and ii) are willing to work hard 10 hours a day, to get a job where they can simultaneously benefit the global economy while making enough money to support their families.
Raising the minimum wage to $15 or $20 or even $30/hour isn’t going to fix that. And neither are labor unions. This is an existential problem that needs to be addressed at the highest possible levels. Of course it won’t. The good folks that inhabit the Eccles building will point to record low unemployment to justify rate hikes (when they want to, but when they don’t they’ll point to China and subpar inflation to justify keeping things on hold) and to support the contention that the US economy is on solid footing.
Here’s a bit of color on the New York mandatory minimum issue via Reuters:
Governor Andrew Cuomo and state legislative leaders reached a deal on Thursday to raise New York state’s minimum wage towards $15 per hour, but fell short of a uniform state-wide increase.
The deal outlines a faster rise in New York City, but carves out a slow lane for small businesses and surrounding counties. In less prosperous areas north of the city it rises to $12.50 per hour before a state review of the law’s impact.
The minimum wage agreement was part of a broad budget deal that Cuomo announced late on Thursday. He said the plan included 12 weeks of paid family leave and $4.2 billion in tax cuts. The $147 billion budget caps spending growth at 2 percent.
“I believe that this is the best plan the state has produced in decades,” Cuomo told a news conference.
Under the terms of the deal the minimum wage would rise from its current $9 per hour to $15 over three years in New York City starting on Dec. 31, 2016. City businesses with up to 10 employees would be given four years to implement the measure.
Long Island and Westchester County around New York City would be given six years to push through the increases while the rest of the state would see the minimum wage rise to $12.50 in five years, with indexed increases to $15 possible after review.
There is also a provision to suspend the increases from 2019 if economic conditions worsen.
Great. You’ll now make $15/hour to serve downtown lattes to Jamie Dimon’s assistant and on the off chance someone important happens to venture up to mid-town (which they won’t), you may get a $5 tip in the plastic cup.
Of course you still won’t be able to afford your upper east side apartment without an annoying roommate, nor will you have any hope of making anything of your life other than ensuring that you know the difference between a latte and a cappuccino.
But don’t worry. Your vote counts. Because Hillary will fix this.
Or Trump will.
Or Bernie will.
Or Cruz will.
Or wait… is this hopeless?
Maybe you’ll just stay broke until the “right” person comes along…
* * *
Bonus: from Bloomberg…
Raising wages by government fiat seems to be catching on. The lowest-paid workers in Britain and California — two of the world’s largest economies — are only the latest beneficiaries of plans to lift the minimum wage.
The goal in every case is commendable, but the method is far from ideal. On Friday, Britain’s minimum wage will increase to 7.20 pounds ($10.36) an hour for workers age 25 and older, rising each year until it is expected to be above 9 pounds by 2020. California has agreed to set a $15 minimum wage by 2022. New York Governor Andrew Cuomo wants to do the same in his state.
At least 25 U.S. cities have raised their minimum wage since 2014. Germany did so last year, and more increases are planned. Japanese Prime Minister Shinzo Abe hascalled for a 3 percent increase in the minimum wage each year.
It’s hard to quarrel with the goal of a “higher wage, lower welfare, lower tax” society, as the U.K.’s government puts it. But the minimum wage is a two-edged instrument, because it raises the cost of hiring unskilled labor. Any increase, therefore, runs the risk of raising unemployment — and the bigger the increase, the bigger the risk. In addition, governments aren’t being honest about who bears the costs. At least some of the increase in employers’ costs will be passed along as higher prices to consumers.
It’s hard to say exactly what the effects of this minimum-wage activism will be. The economic literature on the subject is voluminous — but inconclusive. A 2014 Congressional Budget Officestudy concluded that a $10.10 minimum wage in the U.S. would lift 900,000 out of poverty but result in the loss of 500,000 low-wage jobs. Other studies say the employment effects would be smaller. There’s little experience as yet with minimums as high as $15.
Another problem, especially with national minimums, is that labor-market conditions vary a lot from place to place. Britain’s minimum applies equally to London, where the wage floor by 2020 will be 47 percent of local median income, and Sheffield, where it will be 71 percent. The one-size-fits-all approach is going to cause problems for Germany as it tries to absorb an enormous influx of unskilled immigrants.
If governments overdo it and push the minimum too high, correcting the error might not be easy. Lowering the minimum will arouse political resistance. The California proposal includes “off ramps” that would allow the government to pause the annual increases, but it couldn’t lower the floor — and current rates of inflation would take a long while to do that without assistance.
A safer and more honest way to support the wages of the low-paid is with a subsidy, using programs such as the U.S.’s earned income tax credit. Rather than reducing the demand for unskilled labor, a subsidy increases it. The drawback is political rather than economic — the cost to taxpayers is explicit. This approach, therefore, calls for brave leadership, which is not always in supply.
The best way to raise low wages is to raise productivity by helping workers to acquire skills and by ensuring that new entrants to the workforce are well educated. Reform along these lines requires not just political courage but also patience, because the benefits might not be apparent for years.
In the short term, raising the minimum wage — modestly, and with sufficient flexibility to allow for local market conditions — might do more good than harm. Relieving poverty in work deserves to be a high priority. But smarter ways of doing it shouldn’t be sidelined, and caution should be the watchword.
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