Hypnotized by the minimum wage – Mero Moment, 6/3/14

This post is a transcript of a 4-minute weekly radio commentary aired on several Utah radio stations.

streetworksI got my first job when I was 15 years old loading groceries into cars at one of the nation’s first membership stores in the suburbs of Washington, D.C. I made $2.15 an hour that, for a 15 year old in 1973, was nothing to sneeze at. After a while I got a 10-cent raise and was promoted to work inside the store in its warehouse.

I remember vividly the day that the union representative from the retail workers’ union stopped by to sign me up. He explained all of the benefits to joining the union. I knew how hard I worked and I recall asking him how much the guy pushing the broom all day was paid hourly. The union rep told me proudly, “He makes the same as you! That’s the strength of our union!” I told him I didn’t want any part of an organization that would pay that guy the same as me. We did different work. Furthermore, I did more work than the other guy and I expected to be paid more. I didn’t have anything against unions – how could I, I was 15 years old? – but I had a strong sense of self-interest.

The minimum wage has long been the sweetheart of unions and progressives alike. In 1973, the minimum wage was $1.60 – a point the union rep was sure to highlight when I was making $2.15 under union rule. But the same rules that paid me higher than minimum wage also kept me from making more if I worked harder and produced more.

Today, the minimum wage is $7.25 and the Obama administration is pushing for an even ten dollars or higher. Last February, around 100 employees of McDonald’s demonstrated and were arrested outside of its corporate headquarters for demanding $15 an hour. There is something hypnotic about the minimum wage for many people.

Minimum wage jobs are typically service sector jobs such as in restaurants and department stores and those businesses face certain realities. One reality is that service industries are extremely competitive and have tight profit margins. Increasing the minimum wage creates pressure on these industries to raise prices and that’s not always a competitive proposition.

Minimum wage increases put upward pressure on all wages – a fact not missed by unions whose members typically make higher than minimum wage. And there are lost jobs involved. When wages are artificially increased on an industry, that industry will adjust naturally to an employment equilibrium that makes sense for it. It has X amount of dollars for wages and if wages are forced higher, jobs will be reduced. Ironically for progressives, the jobs that are usually dropped first hit the poorest people.

Henry Ford established a living wage in his heyday. Ford would pay married men with families more than his single workers because he saw them as more dependable and harder working on the whole. But that was in the early 20th century, when culture and personal values upheld the concept of supporting a family on one breadwinner’s wage, helping to keep the family intact and healthy. With the disintegration of families, these wage disparities (even if justified) are no longer possible. The progressive answer is the minimum wage. The problem, like most circumstances derived from egalitarian thinking, is that no industry outside of Kuwait can afford to pay everyone a living wage.

My friend Lawrence Reed, president of the Foundation for Economic Education, said it best, “You cannot make a person worth a certain amount by making it illegal to pay him less.” Increasing the minimum wage is a bad idea.

For Sutherland Institute, I’m Paul Mero. Thanks for listening.

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