Minimum Wage: Minimum Gain?

 Listening to the Freakonomics podcast on the minimal wage, Mad Dog experienced the delight of being pulled first in one direction, then the other, as if the winds shifted with each speaker in a lovely debate.

August Macke

Bernie Sanders has been hammering away at the minimal wage since forever and Mad Dog had simply accepted this was simply a matter of economic justice, of doing something to assuage some economic injustice on behalf of those at the bottom of the economic ladder, the immigrant working three jobs to pay the rent, feed the family.

And Mad Dog has dismissed out of hand the idea that those storied "job creators" would simply pack up and go home if they had to pay $15 an hour to their employees. What MacDonald franchise owner is going to shut down his shop over paying that sort of wage?

But then, Mad Dog had pause. Mad Dog once ran a small business and he had one employee. He had to pay a contribution her Unemployment insurance required by the state, Social Security and in order to have a simplified employee pension plan for himself, he had to pay into a plan for her.  And he paid into an "Injured Workers Fund" and there were several other assessments Mad Dog cannot even recall at this point, which the state required Mad Dog pay into for the privilege of having an employee. At one point Mad Dog asked himself: Did I hire an employee or adopt another child? Mad Dog's profit margin was perilously thin for at least a dozen years and increases in insurance rates more than once threatened to scuttle his entire enterprise, not to mention increases in office space rent. He was enormously relieved and happy to not have to be an employer when he finally got a real  job with benefits, after 27 years as a small business owner.

August Macke

But Mad Dog always paid his empolyee more than minimal wage. He had to. Without her, he simply could not run his business. She was valuable and he didn't want her to be hired away and right within his own building there were plenty of other small business owners who would have been happy to do that. So Mad Dog paid for a parking space in the building for her and he gave her a two week bonus at Christmas and he advanced her a loan for the new car she bought every 3 years.  And he felt good about that pension, after a while, because she was married to a no good derelict and that was the only way she could make it, that plus Social Security when she retired and she was 40 when he hired her. Of course, best laid plans--Mad Dog discovered her no account husband had raided that retirement account so he could buy himself a brand new Ford F 150 truck. He claimed he needed it because he had a part time gig delivering flowers. But that's another story.

August Macke

Back to the debate: The economists arguing against the minimal wage increase did not try to say small business owners would shut down rather than pay higher wages. There was some evidence that happened for certain marginal businesses, like the pizza shop or the dry cleaners, but what they did argue was this: The guy who bears the burden of the minimal wage increase is the guy least able to afford it: It's the guy running a small business like the coffee shop, the barista, the flower shop, while the guy at Golman Sacks couldn't care a whit about an increase in the minimum wage. And Mad Dog thought of his own experience: yes, he was one of those marginal "job creators." And there was some data, although it's devilishly difficult to tease out, showing there were some job losses associated with raising the minimum wage in some states. 

August Macke

But if those who do get the higher wage are benefited and now can work only one job, does that not mean the economy and the people are better off as the jobs that do survive can pay a living wage?

Actually, two problems with that. The higher minimum wage only raises the real, expendable income by about 9%, so the change in life for the wage earner is not affected as dramatically as Mad Dog assumed.

The other problem is who are the minimum wage earners? A lot of them are teenagers, whose income may or may not be critical to the family income. Some percentage are the children of privilege, just looking for extra cash. We are not talking about the minimum wage eliminating poverty there.

Obadiah Youngblood

And for some small businesses this means they will only hire experienced employees rather than first job teens, if they have to pay higher wages. The teenager who may not show up for his shift because the job is not critical to his life is not a good bet. But some of those no experience hamburger flippers do need the job to put food on the table and they are locked out.

August Macke

The argument for higher minimum wage to fight poverty is hurt by the observation that most families living in poverty have nobody in the family working. For these families free or low cost day care would make more difference. Or a guaranteed income. But not $15 an hour for a job nobody in the household even has.

One proponent argued that if businesses operating on such a tight margin they could not afford to pay $15 an hour then maybe they should not be in business at all, sick little businesses with no long term prospects--the laundry, the car wash, the coffee shop, the pastry shop. Our own downtown in Hampton has had a succession of business along High Street and Route One which, when they opened, selling surfboards or comic books or board games based on great battles in history or vacuum cleaner supplies or flannel garments or knick knacks in a gift shop, everyone in the neighborhood started up a pool to guess how many weeks those places would remain open.

August Macke

In the end, Mad Dog came away thinking exceptions could be carved out: The big one is for restaurants where the owners ask for an exception for waiters who get twice in tips than the salary they receive. Or maybe for a company with fewer than 20 employees. 

One thing Mad Dog came to accept: Bernie's $15 an hour will not make all that much difference this economy.  Day care, cheap and available, transportation public and low cost and maybe some tax credits for the poor may make a difference but the minimum wage is not much of a solution.