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Raising The Minimum Wage Is a Job Killer

Posted by Larry Doyle on February 13, 2013 9:56 AM |

I would like to think that I have a heart and detest the fact that there are millions of people living in poverty in our nation. This said, basic economics is less a function of what is one’s heart than what is in one’s head.

The number of people living in poverty in America is now approaching a 50 year high. That fact is certainly regrettable but President Obama’s call to increase the minimum wage is not the answer to this problem. 

I am sure that many people with big hearts would think that if only those greedy companies raised the minimum wage to a somewhat respectable level, that some of this poverty might be alleviated.

Simplistic thinking of that sort might sound good in a State of the Union address but it would certainly not pass muster in any legitimate Principles of Economics 101 seminars.

Let’s go to class and listen to renowned economist Milton Friedman who lays out the basics of minimum wage economics in less than 4 minutes:

Political pandering may work in Washington but ignorance is no excuse for putting forth proposals that have been refuted for decades. Instead of raising the minimum wage what we need to raise are workers’ skills so that they are more in demand thus driving up their wages. Education is the key. Our nation’s ~50% urban graduation rate is the real problem.

Any questions? Otherwise class is dismissed.

Remember to navigate accordingly.

Larry Doyle

Isn’t  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • http://www.mainstreetoutloud.com/ Rudi

    This issue, minimum wage proposal, was one that truly sparked a big reaction within me and it wasn’t positive.

    I agree with this short piece by Larry Doyle. I will have plenty to say about this issue on our Saturday broadcast.

    America can’t continue down this government path of deceptive planning for more control by making people more dependent on government. Tune in Sat. at 3:00 PM More info at: http://mainstreetoutloud.com/id7.html

  • Rob

    The fundamental lack of basic economic sense amongst the starry-eyed, “Big Government will save us!” types is maddening.

    How can businesses, especially small businesses, already struggling under the crush of regulation, taxation, our crippled economy and a sagging US dollar magically afford to give all entry-level employees a $1.75/ hr raise?

    They can’t. They’d do what I would. I’d run the numbers to see how I can keep my payroll at current levels and then lay off the weakest member(s) of the organization.

  • Peter Scannell

    “Instead of raising the minimum wage what we need to raise are workers’ skills so that they are more in demand thus driving up their wages.”

    Unfortunately we have shipped those skilled jobs overseas to countries that pay minimal wages. By dismantling our manufacturing infrastructure – we lost the very jobs opportunities that lead to higher skill sets that have historically been found in industries that have virtually disappeared in the U.S. Textile, electronics, steel, tire, furniture, shoes, and so on…just look at our nation’s trade deficits.

    The burden is on the private sector to bring those jobs back, and the government should help with incentives as well.

  • Ed Pefferman

    ” Raising the minimun wage Is a job killer”……
    ………there is a lot of economist that would disagree
    with you, Larry.

    Ed

    • James

      I finally agree with the Prez….

      We SHOULD raise minimum wage to $9.00 per hour….. Here’s how-

      I employ X amount of minimum wage workers. I CONTINUE to pay them $7.50 per hour. The other $1.50 cents to bring workers up to 9 Bucks comes as a form of Government subsidy and those moneys are taken from the welfare, food stamp and unemployment programs!!

      See, by working across the isle, WE CAN MAKE A DIFFERENCE!!!!!

  • Ed

    Yup, if i want to work for under $9 an hour it shouldn’t be illegal and believe me there are days…

  • Ed Pefferman

    Larry.
    Milton Friedman is a retread from the 80’s ……….
    remember what Bush Sr. called the Chicago School of
    Economics…….vodo…….economics

  • John B. Egan

    I understand the knee-jerk response to these issues….At age 65, I’ve heard the same ‘common sense’ response to a ‘potential’ lifting of the minimum wage before Congress and Lobbyists hack it to an unrecognizable format as they always seem to. I point to child care, housemaids and even farm workers as being exempt from minimum wage laws for example. But to reiterate, I have listened to this argument a dozen times in my life (State and Federal) as to how horrible it will be to the economy, and yet, until Bush Jr overspent on silly wars and tax handouts, we’ve had a real good run here in the US..And I’ve enjoyed every bit of that run! But lets look at facts rather than suppositions. I looked up common labor costs for those fields that hire the most low paid employees, fast food, average retail, and Walmart (which exists on a planet of it’s own due to it’s enormous size). So here are the horrifying numbers (bearing in mind that many States are already at the proposed minimum wage, and many are paying above that to meet demand – oddly without screaming blue murder. Go figure! I had to hunt these figures across several sites and the percentage is based on sales:

    Fast food : 25%
    Restaurant: 20-35% (Call it 30%)
    Retail : 9-15% (Call it 12%)
    Walmart : 1% (Yep 1%)

    Presuming that $9 is a rise from $8, then the factor would be (for those not already paying $9 p/h) a 12% increase.

    Type Labor Increase Product Increase

    Fast food : 3% 0.75%
    Restaurants : 3.6% 1.08%
    Retail : 1.44% 0.17%
    Walmart : .0012% Not even worth calculating.

    I know like farmers that scream when the weather is too hot, or too cold, or too rainy, or not rainy enough, or there are no bugs to pollinate, or too many bugs..etc, etc..That business owners focus on their bottom lines, but tell me that these percentage increases will kill the average business that knows what it’s doing, knows how to accommodate cost increases through efficiency, planning or ordering, can’t deal with a 1% or less product increase? Lets face it Walmart and large retailers like Amazon, wouldn’t even notice it.

  • Frank

    Obama is the most accomplished liar to ever hold the office. He doesn’t mean anything he said & he knows nothing will be adopted.

    The take-away from the SOTU speech is —- THE LOOTING WILL CONTINUE!!!

    As a nation we have again been taken in, the political schmaltz of liberal rhetoric wedded to a previous four-year record of; a) the militarization and financialization of American capitalism; b) an all-out campaign of aggression via armed drones for targeted assassination squarely in the realm of war crimes; c) a pattern of deregulation which mocks his plea for a rising middle class (proportionately, a sinking three-quarters in relation to the upper one-quarter); and d) near-absolute silence until now on gun control, climate change, infrastructure, meaningful job creation and foreclosure relief.

    In sum, a con man up to his old tricks, meanwhile conducting business-as-usual with respect to assassination, placating and expanding the function of the CIA, pivoting US forces to Asia (Pacific-first strategy) to force confrontation with China, and appointments, e.g., John Brennan, which invalidate all liberal rhetoric by the contempt shown civil liberties and the rule of law.

    Obama is running a National Security State–surveillance et. al.–not even noticed by the present chorus of approval. Wall Street has sense enough not to appear gleeful. Defense contractors, health insurers, Big Pharma, ditto.

  • Rick

    if there is one thing i could make the time to write about, it would be min wage.

    It is immoral on two counts..the fraud it perpetrates on those on the bottom of the wage ladder…severing them from the ability to be employed….and the fact that starting with this legislation we gave in on the point that government can settle on prices for labor.

    it now goes all the way up the rest of the ladder too.

  • NRG

    In addition to his failure to understand the impact of raising the minimum wage, BO also is out of touch or just outright lying about health care costs.

    Obama’s Big State Of The Union Lie

    “Already, the Affordable Care Act is helping to slow the growth of health care costs,” said President Obama, who was roundly applauded in his State… View Enlarged Image

    ‘Already, the Affordable Care Act is helping to slow the growth of health-care costs,” the president claimed Tuesday.

    This ranks as one of the biggest State of the Union whoppers ever told.

    In fact, not only are health-care costs climbing, but employers are also shifting those costs onto the very “middle-class” families Obama spent much of his speech championing.

    Since ObamaCare was enacted, family health-insurance premiums on average have soared $3,000, according to the Kaiser Family Foundation.

    The president promised the law would slash premiums by an average of $2,500 per family.

    That means he’s broken his word by $5,500. And costs are expected to continue to balloon as the major provision of his law — universal coverage — kicks in next year.

    Aetna, for one, expects premiums to shoot up 20% to 50% after some 40 million Americans start to enter the system for the first time in 2014. That does not count the more than 11 million illegal immigrants Obama would make eligible through amnesty.

    Studies show personal spending on health care typically doubles after people go on insurance.

    ObamaCare already imposes a raft of new mandates on insurance that have added to the cost of coverage, including a ban on lifetime caps, limits on out-of-pocket expenses, and a requirement that family plans cover children until they turn 26.

    To soften the impact of these new expenses, employers are making their employees pay for care up front through higher annual deductibles.

    The latest employer survey by Kaiser shows a huge leap in the number of employer health plans requiring workers to meet high deductibles before insurance pays for their medical expenses.

    The foundation says the share of workers with deductibles of $1,000 or more for individuals more than tripled to 34% last year from just 10% in 2006.

    Fully 70% of large companies, including General Electric, Wells Fargo, JPMorgan Chase and American Express, recently have shifted all or most employees to high-deductible coverage, according to benefits consultant Towers Watson.

    Many corporations now require salaried workers to pay yearly deductibles as high as $5,000 for families.

    Smaller employers are also desperate to contain ObamaCare’s cost hikes.

    Among those Americans employed by small firms, Kaiser found that almost half are now in high-deductible plans.

    The latest data show employers are simply shifting health-care costs onto their employees by increasing workers’ contributions to health coverage and offering expensive high-deductible health plans to absorb the cost of ObamaCare, which will only get worse when the law fully goes into effect.

    Not only have Obama’s health-insurance “reforms” made coverage more expensive, but they’ve also resulted in workers having to pay more medical expenses out of pocket.

    That could be a good thing in the long run, since patients who have to pay for care up front shop more carefully and take better care of themselves.

    They tend to seek out lower-cost providers and ask whether tests are necessary. And that greater first-dollar responsibility drives down medical costs.

    By claiming costs are down, the president is either completely out of touch with trends in the private workforce or is shamelessly misleading us.

    It’s likely the latter, because ObamaCare is trying to stop this cost-control effort by banning deductibles over $2,000 for single coverage.

    It also mandates preventive care coverage, which will encourage regular trips to the doctor. Few if any real data support Obama’s claim that preventive care saves money in the long run by preventing major illnesses.

    More likely, it will promote overuse of medical services and inflate costs.

    The cynically named Affordable Care Act in fact makes health care decidedly less affordable.

  • Small BD

    Exporting jobs is a job killer. Lack of family health coverage is a killer. During a big chunk of Milton Friedman’s life (born 1912), bypass surgery and brain transplants only cost $50 and $75, respectively.

    Had the minimum wage been indexed in proportion to reality over the past 30 years we might have seen fewer liar loans, stress-related illnesses and despair. (The encouragement of liar loans didn’t exactly help, either).

    Are workers ‘entitled’, so to speak, to a wage that keeps them within reasonable parameters of inflation?

    That being said, I feel that Obama’s agenda has more to do with bolstering the democratic party via reaching out to liberals and minority voters (nothing to do with racism- just dealing with realities of changing demographics).

    Mr. NRG comments: “Studies show that personal spending on healthcare typically doubles after people go on insurance.” I doubt that any study can sufficiently control for the variety of personal needs, or be predictive / track LONG-TERM cost savings. I’m sure that you will recall one of the initial consequences of ‘Universal’ coverage in Massachusetts. So many people had difficulty in scheduling doctor appointments that a big percentage of newly insureds had no alternative than to go to emergency rooms for routine care; which is obviously much more costly.

    But don’t get me wrong: I strongly oppose ObamaCare and believe that, among many other problems, there will be similar capacity issue as in MA.

  • Justin

    New Research: Labor Unions Support Minimum Wage Hikes Because Their Contracts Peg Salaries to Minimum Wage Levels
    Research from the Center for Union Facts Uncovers Union Agenda Behind President Obama’s Minimum Wage Hike Proposal

    WASHINGTON, D.C. – Today the Center for Union Facts released new research detailing how many collective bargaining agreements link union salaries and wage rates to the federal minimum wage. This research comes two days after President Obama proposed raising the federal minimum wage from $7.25 to $9—a move which labor unions broadly praised.

    The research brief can be accessed here.

    “This research shows that labor unions stand to gain from minimum wage increases, even though their members don’t make the minimum wage,” said Richard Berman, Executive Director of the Center for Union Facts. “Some union contracts set starting union wages as much as fifteen percent higher than the federal minimum wage.

    “Union officials have been anything but altruistic in their support for minimum wage hikes over the years,” Berman concluded. “This also calls into question whether some politicians who support minimum wage hikes do so out of support for unions—the same unions that are some of the nation’s biggest campaign contributors.”

    • Small BD

      I visited the unionfacts.org website, read the brief, and searched the website in vein to find anything that constitutes ‘research’.

      The Brief is perhaps analogous to a literature review that could, given an unbiased environment, become an hypothesis or incorporated into research.

      Pres. O. may indeed have an agenda. But I am not sure what dubious plot has been uncovered here. Besides, the so-called democratic party has been marginalizing the unions while the dollars from Wall Street have been rolling down the Beltway (most particularly in the case of Chuck Schumer…).

  • fred

    While we quibble about the minimum wage, the real story is left unreported and neglected, EMPLOYEE STOCK OPTIONS.

    What if the money piling up in cash balances is not a “depression era” mentality as Einhorn suggests but rather cash that is set aside for stock repurchase programs left unused because corps are instead funding stock option plans with ZIRP debt.

    Where is the risk in stock options when the purchase price is below market value, except maybe to the shareholders?

    Maybe cap gains on stock options should be treated as ordinary income to the recipient.

    LD, on another topic, you never cover any Wall St-Washington “incest” as it relates to the Federal Reserve. Do you think it has been any sort of a factor in the recent passed?

    Isn’t the Fed the banking regulator responsible for overseeing reserve requirements and leverage ratios?

  • fred

    REDISTRIBUTION.

    The political adgenda is now all about redistribution of wealth. It’s a necessary part of beautiful deleveragings fully endorsed by the Fed and our national government. In the late 1970’s, once deficit spending was freed from the shackles of the gold standard, it was accomplished by gov’t policy designed to bring women into the workforce; now it will be accomplished by promoting “other” minorities via discrimination law, affirmative action policies, raising the minimum wage, immigration policy, employment initiatives, educational initiatives, etc.

    Tax policy favoring big corporations at the expense of small businesses, government support for “too big to fail banks” (forget credit history, all you need is a steady paycheck) and a national energy policy designed to attract global manufacturing investment rather than promote energy price arbitrage (something we can all put in our pockets), are tools of redistribution.

    As our gov’t learned after WWII, even “unskilled” manufacturing jobs when combined with unionization and/or increased minimum wages and COLAs creates a new, upwardly mobile population yet to be encumbered and ravaged by debt.

    I don’t know if redistribution initiatives are right or wrong, I just know that if an economy isn’t expanding without debt, redistribution is designed to happen. For the non-favored majority (interestingly, at some point we all become a part of this group), its best to become skilled in the art of self sufficiency, educated technically, knowledgeable in capital gains/dividends income/investment and keeping debt levels low.






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