Rick Becker: Senator Heidi Heitkamp Has It All Wrong On The Minimum Wage

With the failure of her co-sponsored bill that would have raised the federal minimum wage, Senator Heitkamp has portrayed Republicans as not caring about hard working families struggling to put food on the table.  Allegedly the intent of the bill was to “lift people out of poverty”.  It seems simple enough: if people make more money, they will be less poor.  One might ask, “Who could possibly be opposed to that?”

If only it were that simple.

There are several problems with raising the minimum wage that many people have not considered.  One of the primary problems is unemployment.  When the cost of labor increases, the demand for it decreases.   This means when wages are forced higher by the government, businesses aren’t able to hire as many people as they otherwise would, and will need to cut jobs to compensate for the newly increased cost of the others.

The jobs that are cut are primarily those of the lowest wage earners and those with the least experience.  This means that the unemployment caused by a higher minimum wage inordinately hurts the poor, the young, and minorities; exactly the people that proponents claim they want to help.

Usually minimum wage jobs are entry-level.  They are the kind of jobs that allow you to get your foot in the door.  They are jobs where you gain experience and then move up the ladder to better paying, and hopefully, more gratifying jobs.  A minimum wage increase will raise the pay for a limited group of workers at their entry-level job (until they move up), but the workers that were let go, or didn’t get hired, never get the opportunity to gain that job experience and improve their situation.

They are relegated to some level of dependence on the government.

Senator Heitkamp contends that there are mitigating factors that make raising the minimum wage less destructive than its opponents, like me, suggest.  She cites the Economic Policy Institute (EPI) as support.  The EPI, however, is an extremely liberal progressive organization that has, as one of its prime directives, a substantial increase in the minimum wage.  Not exactly an unbiased source.

Nevertheless, the EPI’s literature can be instructive.  They claim that unemployment isn’t as bad as we doomsayers suggest, so long as employers institute one or more “Channels of Adjustment”.  Naturally, by openly advocating for the use of these “Channels”, they are admitting that unemployment is an issue of raising the minimum wage.

The suggested “Channels” include: Increase Productivity, Increase Price, Decrease Benefits, Compress Wages, and Decrease Profits.  As I give a quick explanation of each of these, the reader can determine if they are good for the employees.

Increase Productivity can refer to many things, but here it mainly refers to demanding more out of the worker.  In other words, the entry-level wage goes up, but everyone must work harder.

Increase Price refers to the option of the employer to raise the price of the goods sold to cover the cost of higher wages.  With this option, minimum wage earners’ pay will go up, but everything will also cost a little more.  The net effect is the same as not even getting the raise.  Remember as well, that everyone who makes over the minimum wage won’t have an increase to their wages, but will still pay a little more for everything.

Decrease Benefits is what it sounds like.  The employees lose again with less paid vacation, less retirement contribution, etc.

Wage Compression requires that employers decrease salaries or limit pay raises for those who make above minimum wage.  This means less opportunity and less incentive to climb the ladder to higher wages.

Decrease Profits is the poster child of progressive solutions.  This one might sound ok: the “fat cats” can just make a little less, so the poorest have a little more.  The problem here is that a significant percentage of minimum wage earners work for small business.  Many small businesses run a razor slim profit margin, with no room to spare.  Consider how many small businesses fail due to the inability to turn a profit.  As the saying goes, “You can’t get blood out of a turnip”.  As for the larger businesses with news report-worthy profits, consider who gets benefit from profit.  It is the shareholders; those who have stock in the company, which is what all those employees’ 401(k) accounts represent.  Decreased profits cause decreased share price and 401(k) value, which means retirees will actually be footing part of the bill.

If Senator Heitkamp truly believes increasing the minimum wage will lift people out of poverty with no untoward effects on the economy, why did she not advocate for increasing it to $15, $20, or even $50 per hour, instead of $10.10 per hour, in several steps over three years?

The answer is that raising the minimum wage clearly has detrimental effects, but when instituted in small, slow, incremental steps, the negative consequences can be ignored, or blamed on someone or something else.

Unfortunately, this bill wasn’t about helping North Dakota families put food on the table, as much as it was about diverting our attention away from the Obamacare disaster and several scandals facing the White House, as well as vilifying the Republicans.  We will surely hear more on this issue and other red herring issues over the next several months.

The thrust of my commentary is that the argument in favor of increasing the minimum wage is not what it seems.  Those of us, who are not in favor, don’t wish ill will to minimum wage earners.  Instead, we realize that, like so many shortsighted government interventions, the unintended consequences hurt both the intended beneficiaries, and the rest of society alike.

With a hiked minimum wage, some employees see a very short-term benefit, but when the economics become a reality, they eventually come out on the short side of things.  Just like the hidden taxes in Obamacare, and the thousands of pages of meddlesome federal regulations, raising the minimum wage is a true cost to our economy.

We are directed to believe it’s “free”.  It’s not free.  There is no free lunch.  It’s naïve to believe all this stuff from the federal government is free.  Someone must pay for this.  With minimum wage increases, it’s primarily the employees who pay.