The U.S. Congress in Washington, D.C. and the legislatures in many state capitals are debating whether to increase the minimum wage and, if so, by how much. The numbers are flying.
Some are suggesting a modest increase from $7.25 per hour to just over $8.00 per hour. Others have picked a number higher than $9.00 an hour. President Barack Obama is calling for a coast-to-coast minimum wage of $10.10 per hour. And various labor union front groups are protesting and striking until they are awarded a starting minimum wage of $15.00 per hour.
What these policymakers need to realize, though, is that the true minimum wage is zero, and if Washington sets the federal minimum wage too high, jobs will not be created and wages paid to workers will amount to nothing.
In this photo taken, Aug. 1, 2013, demonstrators protesting what they say are low wages and improper treatment for fast-food workers march in downtown Seattle. (AP Photo/Elaine Thompson, File)
I think we can all agree that most Members of Congress understand less about economics than they do about particle physics. So let us put this in a language more can understand: sports.
The sport is job creation. It looks a lot like the track and field event hurdles. The higher you set the minimum wage, the higher the employer has to jump to create the next job. Right now, many employers are successfully getting over the $7.25 per hour hurdle or the higher hourly hurdles imposed in other states.
If you own a small business that employs 10 workers, you would be like an Olympic hurdler, who has to clear 10 hurdles in a little over 100 yards. This employer might not even notice a small increase to, say, $8.15 per hour. But having to clear a $10.10 or $15.00 hurdle is a completely different event. That’s more like pole vaulting.
Now, consider larger employers. Their race is not to clear just 10 hurdles. They have to clear thousands. That changes things entirely.
To continue with our sports analogy, there are lots of ways for this event or game to go wrong.
Demonstrators in support of fast food workers protest outside a McDonald's as they demand higher wages and the right to form a union without retaliation Monday, July 29, 2013, in New York's Union Square. Activists say hundreds of workers have walked off their jobs. They are demanding a minimum wage increase and calling for better benefits. (AP Photo/John Minchillo)
First, the hurdler may fail to clear the bar, fall flat on his or her face and sustain serious injuries. Off the track, that would be the employer driven out of business and everyone losing their job.
Or the athlete might just look at how high the hurdles are and never bother getting out of the starting block. Those are businesses that never get off the ground.
In the real world, employers are doing these calculations every day. And the math is pushing businesses in some surprising directions.
Many businesses are changing the game entirely and refusing to jump through Washington’s hoops or over its hurdles. That is why you see the trend toward automation and self-service replacing real live humans in many service businesses.
For instance, Panera Bread recently announced that by 2016 they will have replaced workers with tablet computers where customers will place their own orders rather than giving their order to an employee.
This trend is not new. That is why the country employs fewer bank tellers, toll takers and supermarket cashiers than in the past. Every penny of increase in the minimum wage will change the employer’s math, accelerate this trend and extend it to even more industries.
Workers celebrate after U.S. President Barack Obama signed an executive order to raise the minimum wage for federal contractors from $7.25 to $10.10 during an East Room event February 12, 2014 at the White House in Washington, DC. President Obama spoke on 'on the importance of raising the federal minimum wage for all workers' at the event. Alex Wong/Getty Images
These minimum wage increases would ripple throughout the entire economy. Many workers who currently make more than the minimum wage (amounting to about 97 percent of the workforce) will expect to get a corresponding boost in their pay. In fact, if those employees are in a union, it is very likely that their contract will require they get a raise.
If you were wondering why some of the loudest advocates of a minimum wage increase are union bosses, they’re doing their own math. They know that if a minimum wage hike pushes up their members’ paychecks, the dues deducted from those paychecks will rise as well. Big Labor bosses understand economics better than they let on.
If America is going to embrace an increase in the minimum wage, we should learn from the past.
In September 1997, the minimum wage settled at $5.15 per hour. It was not increased again until July 2007, when it was increased by just seventy cents per hour. It was increased by another seventy cents one year later and a final seventy-cent increase came one year after that, to the $7.25 requirement of today.
This last round of increases in the minimum wage took place in a very different economy.
America was at the peak of the dot-com boom and in July 2007, the U.S. unemployment rate was just 4.7 percent, much lower than in the economy we are stuck in today. And the labor force participation rate was hitting new records at 66 percent. The current rate is hitting new lows, at just 62.8 percent, as more potential workers are sitting on the sidelines unable to find jobs.
The clear lesson is if policymakers are going to increase the minimum wage, they should do so slowly, incrementally and when the economy is strong.
Compare that to the reckless proposals by union front groups like the Restaurant Opportunity Center and Fight for 15, which propose to rapidly adopt a $15 per hour minimum wage, while this economy is stuck in low gear.
These union-led groups have to know that their proposal will devastate thousands of workers and businesses. But I suspect they don’t really care, because it will do wonders for the coffers of the union bosses, which are currently running dry as pension obligations become more and more profound.
Hopefully policymakers will avoid the disastrous economic experiment proposed by these union front groups. Their idea will cause millions of Americans to learn first-hand that the real minimum wage truly is zero.
Fred Wszolek is a spokesperson for the Workforce Fairness Institute (WFI).
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