So now President Obama has decreed that henceforth the minimum wage for all federal contractors shall be $10.10.
Since I doubt there are any fast food outlets littering the White House or the halls of Congress that’s a pretty weak statement. Union activists recently got attention pushing for a $15 per hour minimum wage. With the current rate at $7.25, that figure is akin to a child in Willie Wonka’s Chocolate Factory — fantasy.
Minimum wage jobs are really a footnote in our economy. This recent push by unions and others is a lot about a little. It is really just politics by a Democratic administration and helps deflects criticism from the foibles of the Obamacare rollout while once again putting Republicans on the defensive.
According to the Bureau of Labor Statistics, in 2012 there were 3.6 million hourly workers at or below the minimum wage, and 50 percent of those jobs were held by workers under the age of 25. That is only 2.3 percent of total civilian employment. Needless to say, the highest percentage of minimum wage jobs is in the leisure and hospitality industry. Almost 20 percent of those jobs are in food service, the first stepping stone for young workers.
A congressionally approved national $10.10 minimum wage will draw more workers into the lowest pay category, but everyone below that will be mandated to receive an increase. This adds even more people to the minimum wage category, a slap in the face to those who have worked hard trying to move up the ladder.
The new cost to employers would have a profound effect on their employment needs as many businesses try to automate or eliminate jobs that once went to unskilled youngsters, throwing them out of the labor force.
The Daily Caller reports that several studies point to the need for youngsters to learn soft skills and long-term career benefits while working as teens. Many of those opportunities will evaporate as more highly skilled people, now willing to work for the much higher minimum will compete for those jobs.
It won’t change the level of poverty, a particularly sore point to a city like Savannah where the poverty rate is currently in excess of 28 percent. To escape poverty a family of four had to earn $23,550 per year in 2013. That’s $12 an hour for a full-time job. As an individual, the current minimum wage is well in excess of the $5.89 he or she would have to earn to exceed the $11,490 poverty threshold.
It is a safe bet that in Savannah at least 50 percent of those in poverty are nonworking (nationally it is about 35 percent), so a higher minimum wage does nothing for these people, and probably further diminishes their chances of working (assuming they want a job in the first place).
Liberals have argued that the additional income will be plowed back into the marketplace benefiting economic growth. Looming in the way of that rosy scenario is paying for Obamacare, not discretionary spending. While this is a political issue with too much media coverage, it is doubtful higher implicit costs would trickle through the economy and impact inflation. However, if you are going to envelope thousands more into the minimum wage category, the next round of increases may not be so benign.
I have left some comments on this subject on online articles, and they have generated some hot replies. The recurring theme is that many educated and skilled people, who are among the long-term unemployed, have resorted to accepting minimum wage jobs when nothing else is available. For them it is still a recession, and shouldn’t they be able to make more than $7.50 or $8 an hour? I certainly have empathy for them, and we all respect their needs, but that does not change the value of a given job in the marketplace.
So why are there minimum wage jobs anyway? Because the market works best when there is an efficient allocation of resources, when the value of a job is based on the scarcity of skills. Simply put, the lowest skill levels command the least amount of income. It is a testament to the long-term strength of our nation that there are so few minimum wage jobs.
Russ Wigh is a longtime business professor. Contact him at rdwigh@bellsouth.net