Here’s a loaded question: How much do you think you should be paid for your labor?
If you’ve been in the workforce, then you probably have a pretty good idea of what your skills are worth, and if you operate a business then you know the value of particular jobs.
Of course, many politicians think they know, too.
Earlier this month, the U.S. House of Representatives passed, largely along party lines, a bill raising the federal minimum wage to $15 an hour by 2025. House Speaker Nancy Pelosi called the vote an historic day. “No one can live with dignity on a $7.25-per-hour minimum wage. Can you?”
No, but the minimum wage was never designed to be a living wage. It is a base pay for entry level positions for unskilled workers, but that’s usually forgotten during these debates. What’s also lost is that arbitrarily increasing labor costs does not happen in a vacuum.
The Congressional Budget Office reported there is “considerable uncertainty” in calculating the impact of a $15 national minimum wage, but its best estimate is that up to 17 million Americans could see higher pay, but up to 3.7 million could lose their jobs as employers reduce the size of their payroll to meet the new standard.
Douglas Holtz-Eakin, a former director of the CBO who is now president of the American Action Forum has argued that a one-size-fits-all minimum wage is a mistake because economic conditions and the cost-of-living vary widely across the country.
Take Emeryville, California for example. The small city just outside San Francisco is very expensive. The Wall Street Journal reported the median monthly rent for a one-bedroom apartment is $2,840.
The Emeryville town government mandates a minimum wage of $16.50 an hour. You might think that makes sense because of the cost of living, but it doesn’t for some of the employers. The Journal recounts how restaurants have reduced hours and raised prices to meet the mandate.
Erik Hansen, the owner of Moomie’s, told the Journal earlier this month that he’s deciding whether to lay off three workers or raise the prices of his sandwiches by as much as $1.50.
Socialist presidential candidate Bernie Sanders got a good Economics lesson recently. Some of his campaign workers, who are unionized, complained bitterly that their pay effectively dipped below $15 an hour when they worked more than 40 hours a week.
Sanders’ answer was to reduce the number of hours they work rather than pay them more money for the additional hours. Welcome to the real world, Bernie. Employers do not have unlimited resources. They are not able to magically produce more revenue for higher salaries. They usually must raise prices (if they can do so and remain competitive) or reduce costs elsewhere (eliminating positions or cutting hours are typically options).
The socialists will argue the fat cat business owner should just keep a little less of their profit. According to the U.S. Business Administration, nearly one in five small businesses in the country have fewer than 20 employees. The Small Business Administration estimates half of all new businesses fail in the first five years.
It’s tough out there! Small businesses typically operate on very tight margins. Profit, if they have any, is what’s left over after every other bill is paid, and payroll (employee and employer costs) is frequently one of the biggest expenses.
By the way, it’s worth noting that not long after the House passed the higher minimum wage, that same body approved a budget deal that will raise spending nearly $300 billion above spending caps, further adding to annual deficits and the $22 trillion debt.
These politicians don’t have to worry about a balance sheet because the government can always borrow more money. The businesses upon which they want to foist their payroll mandates do not have the same luxury.