What Conservatives Ought to Explain to Working Families About Minimum Wages

Although I can't recall any particular instances of his using it, except when helping me with my homework, I associate the phrase "think it through" with my father. It has always seemed, I suppose, to summarize a particular approach to the world — almost a philosophy — that he emphasizes.

Not to leap too quickly from general philosophy to economic specificity, but the phrase comes to mind now because I wish people would apply the principle to the issue of the minimum wage, which is in the news of late. The most recent example in the media is the accusation of Nancy Pelosi's hypocrisy, upon the House of Representatives' voting to raise the minimum wage from $5.15 to $7.25 per hour (or about 41%). Not to single him out, but in a comment to Marc's post on that story, Scott Bill Hirst writes:

I support an increase in the minimum wage. ... I do not believe the GOP needs to be a puppet of organized labor but it needs to reach out to working class Americans more. Serious issues of affordable health care and affordable housing are issues that put great financial pressures on Rhode Island households and need to be adequately addressed in our state.

I am still a Republican and Republicans need to facilitate addressing their positions on these issues. We need to look at imports and the respective policies of those countries on how they treat labor.

"Thinking through" the minimum wage brings to the fore the superficial, cynical, and injurious nature of this sort of "reaching out." As I noted in the comments, conservatives and Republicans ought to concentrate on explaining to working families that market forces confound efforts to force-raise wages, often to the detriment of those ostensibly intended to benefit.

Businesses Will Do as Business Requires

First consider the issue from employers' perspective: a business that suddenly finds itself having to pay 41% more for low-end, unskilled labor will have to find that money somewhere else in the budget. In the fantasy land of progressives, perhaps companies would shift resources from the higher ends of their payrolls, but in the real world, isolated excesses aside, those jobs pay better for a reason. More likely, companies will decrease their low-end employment, shifting their tasks either up the pay scale or to technology.

They will also increase their prices. Doing so may push smaller companies past the threshold of being able to compete, ceding the field to category killers (such as Home Depot) that bring economy of scale to their business models. In industries with captive customer bases (e.g., retail), these companies can pass increased costs on to consumers almost as a matter of course. In other words, the cost of goods — often essentials — will go up for everybody, including those at the minimum wage, as well as those who were just barely getting by before. In industries that aren't as tied to particular locations (e.g., high tech), companies that raise their prices too high will lose their ability to compete with firms elsewhere or will have to move elsewhere, themselves.

So, to sum up the effects of aggressive minimum wage hikes from the employers' point of view:

1. Fewer employees at the low end of the pay scale
2. Additional work for those higher up the pay scale
3. Higher prices
4. Fewer small companies
5. Fewer big companies operating locally

Workers Will Go Where the Money Is

To consider the issue from the perspective of employees, I'll draw from my own experience of jobs that required roughly the same level of prior experience (i.e., very little), estimating current pay ranges:

• Music store clerk: very simple, low stress, few discomforts, no danger, not strenuous, $5.30–6.50
• Laborer in seafood retail: very simple, low stress, moderate discomforts, low danger, strenuous, $7.00–9.00
• Laborer in construction: very simple, moderate stress, significant discomforts, high danger, strenuous, $10.00–12.00

(Note that these pay ranges are purely for argument's sake; they don't have to be but so accurate.)

Although I'm simplifying the dynamic involved, there are direct and clear reasons that each form of low-end work has to, or can get away with, paying employees at the relevant rate. Jobs that are more difficult, dangerous, and strenuous have to pay better to attract employees from jobs that are more comfortable. If the music store must now pay employees $7.25 to hang out and watch the register, then the seafood store is going to have to up the ante to find laborers. If the seafood store breaks the $10.00 mark, the construction company is going to have to maintain the margin of remuneration. If laborers approach the wages of carpenter's helpers, then they aren't going to want to begin investing in tools and attention unless that rung moves higher, too, and if carpenter's helpers begin earning at a rate similar to carpenters, then the latter aren't going to take on more responsibility. And so on and so forth, throughout the economy.

Thus, costs rise for companies throughout the pay scale, and prices inflate to cover them. Plainly put, the pay scale just shifts, without an increase in the buying power of anybody involved. And in a globalized economy — with technology always threatening to replace human workers, if there's sufficient incentive for companies to invest in it — it shifts toward a ledge of layoffs and bankruptcies.

A Wage to Die By

In New England, government-types have been toying with the more insidious idea of a "living wage," which, in Norwalk, CT, means "115% of the poverty threshold for a family of four," currently $11.05 (via RIFuture). In Providence, the heated debate is over $11.97 per hour (or $10.19 with healthcare). I use the word "insidious" for four reasons:

1. The idea that salaries should be determined starting with the worker, rather than the work to be done, while sounding like a compassionate approach, takes no account of the market forces that have made capitalism such a powerful system — and a force for good. We might as well just divvy up the nation's capital and allow people to do whatever work they want (except jobs that nobody wants, and we'll, I don't know, take turns at those), which everybody except deluded socialists understands to be an unworkable fantasy. The first indication that this is true is that any sort of "living wage" proposal is necessarily so unrealistically above the current minimum wage.
2. The formula for determining a "living wage" carries implicit social engineering. Just the idea that a single 40 hour per week should be forced to be sufficient for a "family of four" brushes away layers of social and cultural input and creates incentives that are deleterious to social and cultural well-being. The incentives emphasize the single person. If a single person can, working even the lowest-level job, earn at the rate that a family of four needs, then there will be fewer families of four. There will be less motivation to form marital unions, and the motivation for advancement that a family naturally provides will begin to seep from our society. Alternately or simultaneously, the policy will create a perpetual inflation machine, as the prices of goods and services increase in response to what families will initially see as disposable income.
3. These proposals (being unrealistic for a realm in which market forces apply) tend to focus on employees of the government or organizations that do business with the government. And when the government has to come up with more money, it doesn't raise prices in the hope that customers will still find its deals attractive; governments raise taxes, taking the money they need by force of the law, taking from those who make the minimum wage in the private sphere as well as those who were just barely getting by before. As far as organizations that do business with the government are concerned, mandating pay rates that simply won't work in the private sphere creates bifurcated industries, in which the majority of companies are locked out of government work, while the smaller playing field and limitless revenue flow keep the prices that the taxpayers dish out absurdly high.
4. Giving government industry such an imbalanced edge in the job market drains the private sector — the home of entrepreneurship and innovation — of talent, often (I'd say) luring those who might make the greatest contributions, given the push of necessity, into a static complacency.

The Conservative's Advice

Something is clearly wrong when we've reached the point of treating the government more as an employer than as a shared resource. There are activities that government structures are best positioned to undertake; driving the economy is not one of them. Neither is micromanaging employment relationships.

Well-intentioned people who want to help working families — as opposed to "reaching out" to them — should be able to discern, while considering the likely effects of forcing up the minimum wage, the place in which influence would best be applied: getting them past that low-end, clerk/laborer slot by opening up opportunities, not other people's wallets. I've gone on too long to explore them, here, but two areas for action toward that end are education and entrepreneurship, with the emphasis on the latter.

One difficulty with education, as a means toward broad social advancement, is that it will tend to mean advancement across industries. The college-educated laborer will not be inclined to return to the construction site and will not generally recoup his investment of time and money if he does. In contrast, manipulating government policies in such a way as to encourage small businesses — making the leap from employee to business owner more plausible in a world of Big Box stores, category killers, and multinational corporations — would harness Americans' natural drive to succeed and make every ground-floor job in every industry just a first step in each worker's quest to increase his or her own minimum wage.

ADDENDUM:
For more on the living wage movement, see this May 2006 post by Don Hawthorne.