Thoughts on Minimum Wage

The other day over at The Iowa Republican, Kevin Hall (whose stuff is normally unreadable, but this article isn’t so bad) writes up coverage of a 1st Congressional District Forum. He includes discussion of the proposed minimum wage increase:

All the Democrats advocated for raising the minimum wage to $10.10 per hour. Republican Gail Boliver said it should be phased in, eventually increasing to $10.10. Walt Rogers was the only one onstage opposing an increase in the minimum wage, citing a small business owner who is a friend.

“If minimum wage goes up to $10.10, my business is done. My business is done because I’ll be priced out of the market,” Rogers recalled his friend saying. “So, what does that do for the economy? What does that do for jobs? It doesn’t help it.”

Leaving aside the fact that Rogers doesn’t say what kind of business this friend is running, or exactly how many employees it has, there is a valid point in hiding behind the shield of small businesses.

Arguments for a minimum wage increase are driven primarily by the fact that with inflation, the average worker has been making steadily less and less money for some time. Meanwhile, corporate profits are hitting record highs. Obviously, workers are getting screwed.

But not all businesses are making out like bandits here. Small businesses are being squeezed by the same rising costs that have wiped out much of the middle class – for a long time, small businesses were the middle class. Many small businesses, especially those in rural areas, also suffer from a decline in demand due partly to an aging population and partly to workers not having money to spend. See the vicious circle that happens when the 1% starts hoarding everything?

So we need a way to make the transition as painless as possible. Without actual numbers I can’t offer anything concrete, but off the top of my head some sort of targeted payroll tax holiday sounds best. Note I said payroll tax holiday – personal or corporate income tax cuts or holidays have little effect on the marginal cost of labor and would obviously only make our problems worse.

In the long term, we have to ask how viable a business is when the only way it can survive now is to pay its employees less than a livable wage. Sooner or later, inflation should require employers paying out $10/hr, at which point this employer will be going under anyway. So this particular business hardly has the government to blame for its unprofitability, though if the market forced him/her under there’s a good chance they would still blame “taxes.”

A more robust economic development effort, partnered with local chambers of commerce to identify and assist  “brink” businesses, could be part of the answer. But that of course costs money too.

William Rock