By Daniel Weintraub, Sacramento Bee
As the California Legislature considers a proposal to raise the state minimum wage, supporters have tried to paint the issue as a contest between workers and employers. But lawmakers weighing the measure ought to recognize that the more important trade-off involved is between one set of workers, or those hoping to work, and another.
Raising the minimum wage from its current $6.75 an hour to $7.75 would surely benefit those who have and keep jobs that pay the lowest legal wage. But raising the minimum would also hurt some people, namely those who would lose jobs or never get them because employers would see their payroll costs climb by 15 percent.
And looking at exactly who would be helped, and who would most likely be hurt, makes the decision much more difficult, especially if your goal is to help the people at the bottom of the economic pyramid.
Consider a modest-sized company with 100 minimum wage employees, each working 40 hours a week. The total weekly wage costs for those workers would currently be $27,000, or about $1.4 million for an entire year. Raising the minimum wage to $7.75 an hour would increase those costs to $31,000 a week, or $1.6 million for the year.
That extra $200,000 has to come from somewhere. Not too many businesses of that size have that kind of money just lying around in the till. If the employer could not afford the higher wages, the firm would have to let go 15 of those 100 workers to balance the books. In other words, 85 low-wage workers would see an increase in their pay, while 15 others who once had jobs would now have nothing at all.
That’s a worst-case scenario for the workers. More likely, some companies would be able to pass along the costs to customers by raising prices, though most firms already charge what they consider the ideal price for their product. Others might cut back benefits, which are really wages in another form. So the few minimum wage workers with health insurance now would see that coverage put at risk.
But surely some companies would have to shed workers, either through layoffs or attrition, and others would wait longer to hire their next employee. Most studies of the effects of minimum wage increases have confirmed this dynamic. And it makes sense, since we know that when something costs more, people tend to buy relatively less of it.
Yet this is true of the minimum wage at any level. If there were no minimum in today’s economy, there would likely be almost no unemployment, but some people would be working for an extremely low wage. Our society, then, has already made this trade-off, deciding that it is better to have some people remain jobless so that others might earn a higher wage.
The question is whether it would be smart to push that trade even further.
We know who the losers are in that exchange: the least skilled members of society, those whose background or lack of education or experience prevents them from competing in the job market. By forcing employers to pay entry-level workers more than their labor is worth, we are pricing these people out of a job.
Who benefits from this trade-off? Supposedly, working families who can’t get by on the current minimum. But most people who are paid the minimum wage are not heads of households with children. Many are high school or college students, or single people just starting out or semi-retired folks looking to supplement their pensions or simply stay busy.
A recent study of Census Bureau data by the Employment Policies Institute found that 36 percent of Californians who would benefit from a similar proposal to raise the federal minimum wage are living with their parents or another relative. Another 21 percent are part of a two-earner couple, with or without children. And 24 percent are single or married with no children.
Just 19 percent of those who would be helped by raising the minimum wage are single parents or the lone breadwinner in a couple with kids. And that assumes that none of these people lose their jobs.
If raising the minimum wage were an effective poverty fighter, then there would be no reason to stop at $7.75 an hour. Raising the minimum to $20 or $30 an hour would surely be even more effective, putting everyone comfortably in the middle class. Of course, such a policy would cause huge economic disruptions and widespread unemployment. The same is true, on a much smaller scale, for the proposal now pending in the Legislature.
The best way to help the poor is to make it easier for employers to create more jobs. If there are more jobs than workers to fill them, the price of labor will climb naturally as employers bid against each other for scarce workers. Making the creation of each of those new jobs more expensive at the outset will only nip that process in the bud.