Raising minimum wage wouldn’t help
Editor Mike Dobbs says that McDonald’s and Walmart should pay their workers a $15 and hour minimum wage because these companies are making enough money to afford it. He quotes former Labor Secretary Reich as saying “McDonald’s posted strong results during the recession by attracting cash-strapped customers . . .”
That’s exactly what these companies do; they make it possible for cash-strapped people to get the most hamburger or clothes for their hard-earned dollars by keeping prices at a bare minimum. In this way they provide a huge service to those with limited incomes. Their profits are large, sure, but no larger than Apple, P&G, Pfizer, etc. And nobody guarantees those profits. Think of the stores that have gone out of business right here in Springfield: Hardees, Burger Chef, Chi-Chi's, Kings, Ames, Caldors, Two Guys, Bradlees, Mars, Circuit City, and others. Profits are temporary.
Any economist would tell you that labor and associated fringe benefits and taxes and employment regulations are the biggest single expense for service businesses. So McDonald’s couldn’t possibly pay $15 an hour and still have a dollar menu. WalMart couldn't sell shirts for $6. So both companies would need to raise prices. But what if Burger King, Wendy’s and Taco Bell (or Target and Kohl’s) don’t go along? McDonalds and Walmart wouldn't be around very long to employ anybody. So government would have to step in and force every business to pay a $15 an hour minimum wage.
Every time the minimum wage goes up, we all feel really good about it. We carefully avoid noticing the fact that unemployment – especially of youth and minorities – goes up, too. More automation becomes more economical, and more jobs are lost permanently. The quickest way to establish the “permanent underclass” that Dobbs decries is to create a minimum wage of $15 an hour. There will be a whole permanent underclass who don’t have the skills to produce value equal to $15 and hour who will never find a job.
There is a solution. It’s called the Earned Income Tax Credit (EITC). Many people who earn less than the government minimum are entitled to a tax payment from Uncle Sam to add to their meager wages. Government can do this because it taxes all of us to pay this credit. So the fact is that most people earning minimum wage are actually taking home more than their salary already. Instead of raising the minimum wage, perhaps we should be raising the EITC.
Liberals need to beware the law of unintended consequences. Doing something that sounds good, but hurts the very people it is designed to help, is the result of too much heart and too little head going into the decision. Many of us could afford to pay a couple of dollars more for a hamburger or a shirt, but not the person who will find himself unemployable at $15 an hour and desperately needing the dollar menu. It wouldn’t be there anymore .