By Jeff Boone
The Federal minimum wage is $7.25. As of February 2015, the California minimum wage is $9 per hour. Supporters of the $15 minimum wage say wage rates don’t cut it… they are not a “living wage”.
But consider this: from 1960 to 2014 the average inflation-adjusted minimum wage has been $7.72 per hour.
However, this is also not 1960. Today low income earners benefit from a myriad of additional means-tested government social programs that did not exist for much of the period between 1960 and today. These include Obamacare and Medi-Cal, Section 8 housing vouchers, the Earned Income Tax Credit, Cal-Fresh student lunch program, SNAP benefits, utility discounts, tuition assistance… the list goes on.
So, if today’s inflation-adjusted minimum wage is about equal to or better than the historical average, and today we supplement these low-wage earners with many more free government benefits, why then is there a movement to drastically increase the minimum wage?
The primary impetus for such a drastic increase in the minimum wage is political. It is a sneaky, back-door, tax-increase scam of unions, government bureaucrats and the politicians they put in power.
How does the scam work?
First, we need to consider that raising the minimum wage to $15 per hour will also force businesses to increase the pay of their higher-wage workers only to keep parity. These higher wage workers pay a higher tax rate. When wages are increased, so are the tax payments. This is the key. Raising the minimum wage will result in billions of additional tax revenue to government.
But there is more. With a drastic increase in the minimum wage for the lucky worker, many of those means-tested government social program benefits will no longer be available. This then reduces government expense thus freeing up money to spend on other things that more directly benefit the politicos pushing for the minimum wage increase.
Unless you haven’t been paying attention to the local, state and Federal budget situation, you will know that government is clearly in trouble having committed spending far greater than tax revenue. The primary challenge is paying for the high wages and mega-high retirement benefits of all the government workers past and present.
Rather than cut the size and cost of government, (something that would make the unions very unhappy), the old standard has been to go back to the public ATM demanding tax increases. But government just can’t keep raising tax rates. Taxed-out voters are finally saying no. So, as an alternative, the unions and their political pals have come up with this slick $15 minimum wage idea to ratchet up tax revenue for government to continue to pay for the high wages and benefits of unionized government employees.
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Let’s pause for a moment and at least give them credit for this creativity.
What do private sector workers get in return for a hefty minimum wage hike? Some will get a raise. But many of these will lose means-tested government benefits. They will have their hours cut and will be given more work by their employers out of necessity. They will lose employer-paid perks and benefits. They will also have fewer job opportunities because the higher cost of labor will force more small business to fail and will result in fewer business expansions and start-ups. Lastly, these workers will pay more for products and services as businesses are forced to raise prices to compensate for the drastic increase in labor costs. (Note too that it will generate more sales tax revenue for government.)
Raising the minimum wage hurts the economy. We note the impact as the US labor participation rate (the percentage of able workers that have a job) and the underemployment rate (workers that are given too few hours) have both fallen to pre-1978 levels. Like it or not, labor has become more a global commodity with jobs flowing to lower-wage countries. Also, labor automation technology (software and robotics) has advanced in affordability and utility to the point that any increase in labor costs helps to justify investment in the technological alternative. Increasing wages through government policy upsets the market for labor and causes long-term negative consequences for domestic small business, workers, and the overall economy.
We all want workers to prosper, but raising the minimum wage is not the way to get it done. Instead we should demand government policies that encourage more business start-ups and expansions to create more job opportunities. We should demand that we shrink the size and cost of government, and reduce taxes so workers retain more of their earned income. Lastly, we should drastically reform our education system to create a more capable and ready workforce.
Raising the minimum wage to $15 per hour would only provide a little help a small number of lucky workers, but at a great cost to many more. It is a terrible idea unless your aim is more money for government.
Frankly
“So, if today’s inflation-adjusted minimum wage is about equal to or better than the historical average, and today we supplement these low-wage earners with many more free government benefits, why then is there a movement to drastically increase the minimum wage?”
It seems to me the height of irony to hear you making an argument that, de facto ( since you have frequently spoken against government aid programs) defends our reliance on these aide programs to “supplement these low-wage earners with many more “free government benefits”.
You have frequently lauded private industry for efficiency and yet now you are defending reliance on this highly inefficient patchwork of programs and means tested benefits as necessary to supplement the income of our low wage workers. I agree that we should do away with the “minimum wage” as something imposed on all businesses as being unnecessarily burdensome to small businesses. However, I would do away with our entire “free enterprise, free market” system, which we know does not exist in favor of a minimum base compensation for all citizens which would meet the new dynamic imposed by globalization which all seem to agree has taken the relatively unskilled jobs off shore and would also meet the new and increasing dynamic of jobs being taken away by automation. It seems apparent to me that due to a number of factors globalization, automation, internet purchasing with movement away from in store shopping as just three, that what we need is not a reliance on the belief that we can grow our way out of this problem ( on the city or national level) or the belief that we should simply keep raising the minimum wage, but rather a completely new way of supporting our population. To believe that we can continue to rely on outdated models in the face of rapid societal and economic change is naive and destructive.
How is it “highly inefficient”?
I have not corroborated the figure, but I’ve heard it stated that we spend over $1 trillion on social welfare programs every year. How much farther do we have to micro manage things?
The quickest way to raise wages and benefits? Seal the southern border and enforce immigration laws currently on the books.
one question would be what is the cost of living in the typical us location versus the cost of living in california where they are proposed $13 statewide versus the cost of living in davis as well as san francisco, la, san jose, and sacramento…
TBD
“I have not corroborated the figure, but I’ve heard it stated that we spend over $1 trillion on social welfare programs every year. How much farther do we have to micro manage things?”
I agree that we should not be micromanaging. Indeed this is a large part of my point. We spend large sums on social welfare but we do it through a patch work of multiple programs. I do not know if you have ever been in part responsible for the functioning of a very large organization or enterprise. If you have been, you will recognize that the best way to accomplish a defined goal is not for multiple small groups of people to take it on independently handling small parts of the project without conferring and coordinating with each other. This is what we have currently. Multiple agencies doling out small amounts of aid, all requiring separate application processes with separate bureaucracies to administer the programs. This is the height of inefficiency.
Then when you add to this mismatch of programs and bureaucratic mess, the fact that for political gain we have politicians trying to do exactly what you are saying, namely micromanage still further ( limitations on what foods people can acquire – no expensive meat or fish for example even if those might be healthier choices or no sodas or treats on the other side of the political spectrum) you can clearly see that this is not the most efficient aide system we could devise.
“The quickest way to raise wages and benefits? Seal the southern border and enforce immigration laws currently on the books.”
I disagree with your “quickest way”. I feel the quickest way would be to enforce employment laws on all of those folks who benefit from the employment of those who have come across the border to work for less than our citizens are willing to work for. If we are going to punish, lets punish the true beneficiaries or our current system, the employers who are perfectly willing to look the other way on questionable documentation and those of our upstanding community members who are more than happy to benefit from the cheap labor rather than punishing those who are desperate enough to work for below the amounts that our fellow citizens will work.
I am not defending reliance on this highly inefficient patchwork of programs and means-tested benefits. But they exist. In addition to helping lower-wage and nonworking people have a better economic life, they do what one would expect, corrupt simple economic assessment for standards of living. They also serve to corrupt self-determination, but we can save that debate for another day.
You have frequently defended our expanded safety net programs and suggested that we need more. So are you changing your tune now: you want to focus on the private economy as the better solution? If so, then maybe I am having some influence on you =).
Oops… guess not =\
Interesting. While communist nations grow their economy and improve the lives of their people by adopting more free enterprise and capitalist principles, you advocate going the other way. Do you always tend to want to throw the babies out with the bathwater, or is it just for this?
I think we do have to discuss a future where more globalization and automation continue to supplant domestic human labor. The impact of globalization on domestic labor is really quite easy to understand, plan for and combat. As the post-WWII economic world has grown flatter from a myriad of conditions including the rise of the Pacific Rim, China and parts of Europe, labor has become more a global, rather than domestic, commodity. As with all commodities in the global markets, there is a price equilibrium. The US previously had the most over-heated labor market, and unions leveraged the demand to ratchet up wages to the highest in the world. Globalism requires that we ratchet it back to global labor market equilibrium. Now, US immigration policy has made it much more hurtful to low wage US citizens. The previous high wages attracted million of immigrants to this country. Now they are here and they have swelled the ranks of low-wage workers at the very time globalism and automation are reducing the supply of jobs, while we also have to ratchet down the wage rates to stay competitive in the global markets. Add to this the business-crippling sky-high tax and regulatory costs in the US, and we have the perfect storm of too little economic opportunity for low-wage people. The most troubling for me are the young people just starting their careers. There is not enough available for them to launch to a live of even moderate prosperity.
What you and others seem to not understand is that everything economic flows from the private economy. Social safety net programs do not exist if there is not money to pay for them (government can just keep printing money and ratchet up public debt, but that cannot continue forever). Raising the minimum wage to $15 per hour is just another tax on the private economy. It is no different that raising the tax on gasoline so that it is $10 per gallon. It will have a chilling effect on the economy because it will change the economic feasibility of economic activity.
There are two perspectives for workers: they are people worthy of our concern and care, but they are also simply resources that business pays for. A worker trades his/her time and skills and accomplishments for dollars supplied by business that requires the time, skills and accomplishments. If you focus on the former and ignore the latter, you will cause irreparable harm to the former… and to the entire nation.
A $15 per house minimum wage might as well be a government-mandated explosive device installed in every business that hires workers.
Labor automation technology is another very interesting topic. My thinking on this is evolving. I am between agreeing that a sufficiently growing economy and a reformed education system will effectively accommodate advances in labor automation. But I am also wary of a technical future that cannot be accurately predicted. As robots and software advance to new milestones currently out of reach, I think we might have to rethink a society that demands all people work 40-hour weeks for 45-50 years after 12-16 years of education. If we do hit a point where our economy is growing at 3.5-4% per year, and we are still not generating enough jobs, I would start advocating to scrap all 70+ government social programs to be replaced with a means-tested cash payment that supplies families a living wage.
This would also require we rethink a great number of things including our immigration policy.
Do not intend to nit-pick, Jeff, and I agree with much but not all of your posts… when you wrote, “A $15 per house minimum wage might as well be a government-mandated explosive device installed in every business that hires workers.” , I assume you mean “hour”. I hope you don’t mean that if the is more than one person in a household, employers could justify a lower wage.
Good catch hpierce. Yes, per hour. I type fast and cannot afford an editor due to the high minimum wage. ;\
Does raising minimum wage increase tax revenue? According to some of the conversation so far, the raise will cut into the profit. So it is a matter of a business paying corporate tax changing to the employee paying income tax. How do we know that there is a net gain in tax revenue?
On why the minimum wage is higher than the inflation adjusted amount despite increased aids, that could be an evidence that the current minimum wage is already too high. I don’t see a counter argument except the correct minimum wage is local. We need the inflation rate of Davis and the historical minimum wage of Davis.
In any case, the setting of minimum wage should be mathematical tied to corporate profit so that its value is always affordable and appropriate for the business.
From the business profit plus the labor cost, define a socially responsible minimum factor of that that should be paid out for personnel (including the business owner). Then, with the number of personnel, calculate the minimum wage for that business. Then, a fair employer should not pay any of its employee less than that amount.
Example:
Suppose the socially accepted minimum payout factor is 50%
Suppose the revenue of a business after all cost other than personnel is $90/hr, and the business has 5 team members working hours per hour (including the business owner). Then the minimum wage for that business is $90/hr /2 /5 = $9/hr. This is the minimum wage the business must pay for any team member.
Suppose the business owner pays everyone else minimum wage and himself the rest, then his payout is $90-$36=$54/hr (nothing left for business profit.)
For that same business to get to paying minimum wage of $15/hr, it need to have $150/hr revenue before subtracting labor cost.
With this there is no problem of asking a business to do something they can’t afford.
For the payout factor: I only know that thefactor is not 0% nor 100%. 0% means no one is getting paid even if the business has profit. 100% means the business always split all profits equally for each member and leave no profit.
Large companies have all sorts of ways to shelter income from taxation. Workers generally do not. Small businesses also generally do not. A percentage of businesses will find ways to absorb the increase costs, mostly from increasing the price of goods and services sold, and also making their operations more labor-efficient. That percentage will offset the tax revenue decline from those businesses that fail because of the increase in labor cost from a $15 minimum wage.
And don’t forget that our income tax system is progressive… the higher the pay, the higher the tax rate.
Tax from worker income is much more lucrative for politicians that almost any other type of tax.
Yes, a $15 dollar per hour wage hike will increase tax revenue. And the politicos that are pushing it absolutely know it and it is their driving motivation.
last year’s report… the question is really what will be the affect of the hike in year 2, not year 1..
Think about that for a while.
If someone said that you could fire 500,000 workers to give 900,000 workers a raise, would you see that as a good deal?
would depend on whether it was short-term or permanent. you’re justifying the exploitation of many workers with substandard wages which i don’t think is healthy for them or the country.
Ah… I see. It seems that you expect the fired people to be rehired again as everyone gets used to the change. You are not alone with this sort of magical thinking.
But then the labor participation rate has been relatively flat since about 1989 when the tech stock bubble popped. And then it dropped with the Great Recession and has continued to decline since then to be at the same as 1978.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/01/LFP%20Participation.jpg
So might I suggest that instead of expecting the people to be rehired, their equivalent numbers would eventually stop looking for work because it is not to be found. And so the government reported unemployment rate would not count these people and it would make it look like they had just been reabsorbed into the workforce. Economists do the same because of the difficulty in statistically determining who really wants to work that cannot find enough work. These people that stop looking for work sort of disappear… except that they consume lots of government social services.
The labor participation rate tells the entire story, not the unemployment rate. Increase the minimum wage to almost twice what the inflation-adjusted rate has been for 55 years, and you will most assuredly decrease labor participation.
You make the claim as the foundation of this essay that “the primary impetus” behind the minimum wage increase (and living wage proposals) is to raise taxes.
You provide no substantiation for this. So it is just a supposition, or, in your case, a conclusion that arises from your ideology.
I am acquainted with people who support these measures, and we have seen columns by supporters here on the Vanguard. Tax revenues are not among their goals. In fact, they are very specific: they want to reduce poverty among the working poor.
They have a particular sub-category of worker in mind: the single parent who is working minimum wage at a large retailer or fast-food chain. That is who they are trying to help.
They are unaware or unconcerned about the impact the increase would have on many other sub-categories of workers: first-time job seekers, the disabled, and people re-entering the workforce.
I think it is likely that unions consider this a possible recruiting tool and a way to regain relevance as their workplace membership shrinks. Certainly leading Democratic party politicians see it as a possible issue for the next election cycle. It isn’t unreasonable to see those motives as well; politics, after all, is often the confluence of ideology with strategy. We certainly see that on both ends of the political spectrum. But to say that tax revenues are the primary impetus?
I disagree with the policy proposal because of the unintended consequences. It is a very inefficient approach to reducing poverty. It will adversely affect small businesses. It will, as the CBO study shows with respect to the federal proposal, harm some people while helping others – a conclusion that can be readily extrapolated to state minimum wage proposals and local living wage proposals. But I believe your foundational premise to this essay is false.
First, you are welcome to disagree with my conclusions. However, I have to ask, do you disagree that a $15 per hour minimum wage will generate additional tax revenue for government, or do you just disagree that public-sector unions and certain politicians that support the unions want it for this reason?
Because unless you disagree that it will generate more tax revenue for government, I find it hard to believe that you think there are no politicians that are motivated primarily for this reason.
If you doubt it will create more tax revenue, please explain.
The problem with this idea to help the single parent with children is that the single parent with children already gets a large amount of social services to supplement her (yes, it is generally mothers) needs.
Are the people demanding this doubling of the 55 year average minimum wage really so crass or myopic to allow so much economic destruction to others just to provide what amounts to a net miniscule benefit to this small demographic? If we are going to take this approach – damage some to benefit others – I would prefer we cut existing government spending and lay off existing government employees instead of wrecking more job opportunities for others… especially young people. Remember, this single-mother’s kids will need to work one day. It seems like just more kicking the can down leveraging their opportunities to give more to the generation before them. Funny, but I thought parents were supposed to do just the opposite… make a better world for their children.
Sure it will, but with respect to tax revenues it’s a pretty nominal amount. As conservatives love to remind us (this is from the AEI):
So…
I think it’s more of an ideological issue than a budget issue for most politicians who favor such increases.
The tax brackets are adjusted annually for inflation, so you are not going to move people into higher brackets if you increase the minimum wage nation wide. Locally though, different story.
Jeff- It will create more tax revenue, but it will also increase the governments labor costs and the amount it spends to purchase things. So in the end it will mostly be a wash. So while they would spend more money each year it would be on the same amount of service.
On a positive note the Nations debt will effectively decrease as the dollar gets weaker as inflation rises.
Don (and all): I see a kernel of truth in Jeff’s tale. The $15/hr folk, (excluding the truly altruistic, which might make up 20-60% of the advocates) in my opinion, want to get votes and/or ‘union dues’ from folk that they really do not care really that much about. Look at the dues CTA and DTA exact from PT teachers who do not want to belong to a ‘union’, but they get “agency fees” for ‘representing them (not), and the paperwork they require to just go down to the “agency fees”.
I rarely agree with Frankly or BP, but the manipulation, politically and economically of the ‘lower class’ [economically speaking] by the political folk, is obvious [to anyone who has eyes], and reprehensible. I accuse both the “right” and the “left” of this.
I fully expect those who see things in monochrome [black or white – and am NOT talking about race], will attack and/or ignore these comments.
I agree with Don, I have not seen anyone pushing for a higher minimum wages to increase tax revenue and lower pension costs. And since prices will rise to compensate for the higher labor costs the only money that will be saved by the government is on those already retired folks getting a pension. (Along with parents with minors, those that are already retired get hurt when you raise the minimum wage).
I have only really seen a push for a rise in the minimum wage by people thinking somehow that will magically reduce poverty and unions thinking it will increase membership dues (see unions exempt from LA wage increase).
Sam.. “… (see unions exempt from LA wage increase).” Am intrigued. Can you provide cite or how to “google”? Thx in advance…
http://www.usatoday.com/story/opinion/2015/06/10/los-angeles-minimum-wage-opt-out-editorials-debates/28748747/
Here is a link.
Sam.. .interesting story… thanks again.
The unions are big proponents of raising the minimum wage because it will tend to eliminate jobs for the lowest skilled people in society who will tend to work at non-union shops. For instance the UFCW would love to drive up costs for non-union grocery stores so that there is less competition from these stores and thus more union jobs.
Interestingly, the unions have done a good job of convincing the public of the desirability of raising the minimum wage.
Yes, pricing the lowest skilled and most disadvantaged people in society out of the work force is not in the best interest of society. More job opportunities for low skilled people where they can learn good work habits and behaviors would benefit us all.
This is a difficult thing to do politically. We have seen opposition to reform from charter schools to “common core”. I do think that universal education is very important.
Yes, As I have pointed out before, a drastic increase in the minimum wage is most harmful to the least skilled and most disadvantage people in society. I think there are better ways to help lift people out of poverty if that is our goal.
I find it very interesting that no one has commented or referred to the hot topic of the “ObamaTrade” legislation (TAA) which has flip-flopped political sides of late; finding Nancy Pelosi leading a charge to defeat Obama’s desires, and Paul Ryan and Ted Cruz backing what appears to be anti-working-man legislation of massive proportions.
Is this too arcane for most citizens?
This massive legislation has been crated in secret for years, hidden under lock and key, behind secured doors, and even most legislators haven’t read it!
The few who have read it claim it gives away our sovereign powers and rights to multi-country treaties (they claim there are 3 of them) and cover numerous areas which have nothing at all to do with trade.
The party’s have lined up along traditional sides, the GOP backing the president b/c they think it will bring cheaper goods and more business, while the Democrats and unions are fighting it as some estimates say we will lose 3-5 million jobs.
One example: Reports claim that it will open the floodgates on immigration, and once enacted, Congress and the people can’t change it. Just as Europe has given away their rights to Brussels / the EU, we will be giving away our rights and freedoms. One claim here is that if our country doesn’t make a decision on an immigration (visa?) request within 30 days, the immigrant will be automatically accepted into the country. Given the glacial pace of government, this would be a disaster. But Microsoft, Google, Facebook and Twitter and all would love hundreds of thousands of techies flooding into the country, lowering their cost of labor with more indentured servants.
It is a rare day when I agree with Nancy Pelosi. Sister legislation that would pay for worker retaining is prima facia proof that jobs will be lost.
No matter where you stand on the issue, why the secrecy? If this legislation is so wonderful, why the secrecy?
Reports are that the GOP is planning hard to bring this defeated bill back life. And we fritter with talk about a $15-an-hour minimum wage.
Are we being hoodwinked?
http://www.breitbart.com/big-government/2015/06/12/sessions-a-vote-for-taa-next-week-is-a-vote-to-send-fast-track-to-the-presidents-desk/
Or am I mistaken?
[moderator] It is completely irrelevant to this thread. Can you please keep to the topic?
Don…kinda’ disagree… other than the bulls*** rhetoric, traditionally, immigration laws and practices (which differ) ARE all about minimum wage… I’m sure you remember the bracero program. As I recall, Ag field work was exempted from normal minimum wage requirements… as late as the mid-70’s, conniving construction firm owners would hire ‘illegals’, work them for a week, and on payday, let it be known that immigration officials would be present, the workers scattered, so the firms got free work (worse than slavery, because most slaves were fed and housed). This was in CA, in the Bay Area.
The $15/hr issue, to me is ludicrous, but I believe we should have been indexing it all along.
The poster’s rant was stupid and offensive, in my view, but it was pretty much ‘on-topic’.
Are you suggesting my post was “stupid and offensive”?
This legislation directly affects the labor market, and the least-skilled workers. Nancy Pelosi, probably one of the few in Congress who have read the TAA, fought the President and won (for now).
Is giving away our freedoms and rights “stupid”?
I agree that the minimum wage should have always had adjustments to keep it increasing with inflation, but apparently the Democrats didn’t want that because it than removes it as a “wedge issue”. Don’t index it, and every 4 years it can be pulled out.
This TAA and related legislation as Obama’s recent amnesty has been blocked by the courts (for now) as an over-reach.
No… your rhetoric completely undermined your arguably valid points (in my view, whatever value, probably zero, that). Your rhetoric, not your ideas were/are my target. You are not my target. Nor your basic views. To say you expressed them awkwardly would be very charitable.
Please note I defended your post as being ‘on-topic’. I am now coming to regret that defense.
Do you enjoy self-inflicted wounds?
I guess that depends upon the reader, I don’t see the BS rhetoric. It is clear that both sides have flip flopped, with the GOP backing this secret “trade deal” which has numerous, extensive provisions, rules, and laws (?) that haven’t seen the light of day.
It allegedly is some international governing agreement which will override some of our independence and self governance. It may eviscerate our immigration laws.
What is BS? Are we a democracy, or a monarchy conducted in secret?
TBD… do you nor see that defining everything in Red/Blue, ‘right/left’, Republican or Democrat is really dumb? Too many on the left/right show symptoms of partial lobotomies, in my opinion.