In their reporting of Seattle’s unanimous vote Monday to raise the minimum wage within Seattle to $15 per hour, USA Today began their article with an interview of a $9.47/hour, economically-uneducated McDonald’s employee: “Martina Phelps says the Seattle City Council's vote today on a historic plan to raise the minimum wage to $15 per hour could change her life.”
Well, yes, it could, Martina, but probably not in the way you were hoping.
The city council of Seattle, composed of the kind of politicians who learned everything they know about economics from studying celebrity gossip and attending union meetings, believes that there’s only one way to increase prosperity: by mandating that private employers give raises. Yes, by imagining that money can be created out of thin air by legislative fiat.
At least they haven’t mandated that it begin immediately. It’s set to start in April, 2015, and will gradually kick in over the next seven years, depending on the size and nature of the employers. They’d better be hoping for hyper-inflation, because if the dollar remains constant, they’ve just signed the death warrant for somewhere between 25,000 and 50,000 Seattle jobs, and maybe even more.
The Elephant in the Room
When politicians campaign for minimum wage increases, they are only concerned about saving one class of jobs: their own. An artificial (government legislated, as opposed to market dictated) minimum wage, while raising the pay of some employees, eliminates the jobs of their coworkers. It’s the only way the math works.
Consider a business – whether a landscaper, or fast food restaurant, or grocery store, or theater, or manufacturer – it doesn’t matter – that takes in enough revenue that it can afford to pay $100 in salaries per hour, after benefits and the rest are allowed for.
Now, that $100 salary pool could be divvied up a number of ways. They might hire fifteen employees at $6.67/hour each. Or maybe ten employees at $10/hour each. Or maybe eight at $12.50/hour each. If we raise the cost of each employee to $15/hour, the boss can only afford to employ six employees (sorry; you can’t employ 2/3 of an employee).
What happens to the other employees, now that he can’t afford to pay them anymore? Remember, he’s still only bringing in $100 an hour in revenue over his material costs and other overhead; he can only afford to pay $100 in salaries. His revenue won’t magically double along with this new cost burden.
If he had fifteen employees at $6.67/hour each before, and now he can only employ six at $15 each, the Seattle City Council has essentially just fired nine of his fifteen employees.
Does the City Council apologize for these firings? Do they accept responsibility, even though every honest economist in America has been reminding people of this very real and painful result of minimum wage hikes for decades? No, they can’t honestly deny the consequences of their actions; they just take credit for the raises they’ve engineered for some employees, while washing their hands of the whole issue of the mass firings of their grateful beneficiaries’ former coworkers.
The Bias of the Economically-Illiterate News Media
How is the issue portrayed in the press?
From the start, the stories begin with protests by corrupt unions, scoring political points for the Democratic Party by scheduling same-day strikes nationwide, outside franchises like McDonalds and Burger Kings and Subways, to maximize interest by news directors. Willing pawns of their gimmick, the newspapers, radio and TV stations send out cameramen and reporters to interview the activists – occasionally the union organizers, occasionally the $8, $9, or $10 per hour employees on strike. They talk about how this poor person is working two minimum wage jobs at 30 or 40 years of age, and can’t support his or her five kids, elderly parent, or three dogs on that meager wage.
By treating it as a human interest feature, rather than as a business section news story, they don’t feel the obligation to be fully objective. “It’s a story about people, after all, not numbers!” Oh, they’ll present both sides, sure, but the argument is skewed.
Note how they word each side’s argument. The employee is “struggling,” “working two jobs,” “trying to provide for children,” “stuck in a dangerous neighborhood,” “unable to afford costly college or technical school.” But the employer, if his side is presented at all, “claims” that it can’t afford such a hike, “believes” that it may be an unaffordable proposal, “objects” to the plan without a good explanation why. Do they ever pity the employer for “struggling” to keep his doors open in a high-crime area, or for being “nickel-and-dimed by the hundreds of thousands of dollars worth of crippling federal, state , county, and municipal mandates?” Not likely.
The employer, after all, is just a busy franchisee; he hasn’t been coached by PR experts like the ones often provided to the unions by the strikers.
The reporter may not even be consciously biased. But if the reporter doesn’t understand economics, he or she cannot possibly analyze the story well enough to cover it fairly.
Again and again, sub-stories are planted in the press, all over the paper. A crime victim is described as a “minimum wage employee,” or a student is graduated from high school and can’t even find a “minimum wage job.” A drug addict is described as being one who moved “from minimum wage job to minimum wage job” before finally hitting bottom in the news story of the day. The reporters may not intend it; such subtle bias can creep into the media without the slightest conscious intent. But it does happen, and it creates a feeling of compassion in our minds for the “minimum wage worker.” Before the story even unfolds, the reader wishes he could find some way to give that poor minimum wage worker a raise.
So when these occasional rallies, protests, and campaigns finally result in actual legislation being proposed and voted upon, the die is already cast. The public knows how they’re supposed to think – “feel sorry for the employee for his poor paycheck” – and the reporter knows how to cover it – “focus on the employee, not the employer.” It’s STILL a human interest story, in the eyes of the paper, the radio interviewer, the TV anchor. They don’t remember how to cover anything else.
Who should we blame? The editors and news directors hire journalism and communications graduates. They don’t require economics degrees or business experience; they’re journalism majors themselves; perhaps it’s all they know.
And they’re in the business, after all, of selling papers, of boosting circulation in print, or rating points on the air. They can’t be expected to “take the side” of the business owners, can they, if that’s what it is – a struggle between cold-blooded capitalists and the poor warm-blooded workers they exploit, as they were taught in college. Their readers are people, after all; they naturally have to gravitate toward the people.
Who Really Suffers?
The challenge in providing accurate coverage to this sort of story is that the beneficiary is so visible: the $9.47/hour employee who might – just might – be able to take a class at the community college, if we just made her wicked employer pay her “what she’s worth.” Hard to argue against that, isn’t it?
But so many others DO suffer, and they’re not invisible either. One of her coworkers may be one of the ones who lose their jobs when the salary pie has to be re-measured, and there are no longer as many slices as there were before. Of John and Jim and Mary and Mabel, perhaps John and Jim will be the lucky ones, and Mary and Mabel will lose out. Or perhaps it will be vice versa – Mary and Mabel remain, while John and Jim are out on the street. Who’s to guess?
To keep the business going, the boss will have to cut the dead wood, or the closest thing he HAS to dead wood, anyway. Perhaps at $9.47/hour, he could afford to employ Martina, who was a borderline employee; perhaps at $15/hour, he just can’t afford her. With fewer employees on his roster, he’ll have to make sure those few are the very best he can find – the very most efficient. The underperformers are now a luxury he can’t afford.
We know, however, that even the best employees can rarely work at double the speed of their colleagues, so when the slice arrives, some businesses will just shut their doors. If a business is dependent on entry level workers – like the McDonalds franchises of the world – then it may close down, or move out of town entirely. And then everybody from the neighborhood loses their local job, and the city’s unemployment rate skyrockets.
(…and the city’s take of the property tax and sales tax will fall as well, when those jobs move away or disappear, but politicians can’t be expected to think of such things. They’re just interested in passing out raises in an election year…)
This doesn’t happen in a day. Just as Seattle has decided to ease into their new $15/hour rule over seven years, many of the other outlandish mandates of government have been eased onto the business community, over the course of years, decades, generations.
Remember, in addition to the hourly salary, an employer must already pay a hidden 7.5% in the FICA match contribution for that employee. The employer covers his share of unemployment and workmen’s comp insurance, as a percentage of each employee’s salary. Depending on his type of business, perhaps the employer must take out error-and-omission insurance, provide health coverage, send each employee for outside training, arrange for each employee to be licensed by the state or municipality.
These burdens are already crippling in many of our overregulated metropolitan areas. They have driven employers out for years. But does the press report it? No.
The press bemoans the lack of jobs in the cities, but they don’t make the connection. They don’t appear to comprehend that the reason we have half the factories, or half the distribution outlets, or half the services, that we once did, is that these burdens have gradually risen to the breaking point already; the doubling of an employee’s salary will only be the breaking point for some more, some that had been just barely hanging on. Others reached that breaking point years ago, and have long since fled.
The Great Migration
Over the next seven years, grocery stores will move from Seattle to the suburbs. So will fast food restaurants, department stores, the call centers of the downtown banks, any business that has a lot of minimum wage workers.
The impact won’t hit everyone directly. There are plenty of businesses that don’t have minimum wage employees, or don’t have many. Law firms, accountant firms, television stations, high-end restaurants, haute couture boutiques, interior decorators, luxury jewelry and china shops… these businesses may pay higher salaries already, so they’ll think it doesn’t hurt them (though their employees may miss being able to shop for groceries or get fast food on their lunch break without traveling to the suburbs).
It’s the labor intensive jobs that will dry up. Factories will move from the inner city to the suburbs. Fast food restaurants will have already done so. Call centers for catalogs, auto clubs, and other forms of customer service may just move overseas.
Do companies hire a call center in India, to handle their American customer service needs, because they want to? Of course not. But when your hand is forced by a government seemingly bent on your very destruction, what else can you do?
One day, the same press that put Martina on the lede paragraph of a story on the minimum wage will put her in the lede of a very different story.
“Poor Martina has to pay twice as much for groceries now, because there’s no competition in the grocery business in her inner city neighborhood anymore.”
Or perhaps “Poor Martina can’t get a job because she has no experience, and no place to get any now that the businesses in her once-industrial neighborhood of the city have all shut down.”
Or perhaps “Poor Martina was mugged today, at the age of seventy, on the same city block she lived in her whole life, and could never escape, because there just weren’t any opportunities in her blighted neighborhood.”
Will the press, fifty years hence, be able to draw the connection? Will they, so far in the future, ever catch on?
The Opportunity for Advancement
Contrary to the popular belief of the economically illiterate press and the Pelosireidian leadership of the Democratic Party, you’re not SUPPOSED to be able to raise a family on a minimum wage job. That’s not the point of it t all!
A minimum wage job – or, more properly, an “entry level job” – is intended to be temporary. It’s an introduction to the business world, a chance to find out what you’re good at, so that you can move up from there to something better, and hopefully better still, and better and better until you’re out of poverty into the middle class, and then perhaps even out of the middle class into wealth. But this trek has to begin somewhere.
It starts with the entry level job – the cashier or drive-through window attendant, the assistant janitor or starter on an assembly line. You can’t move up to line foreman or team leader or janitor or plant assistant manager until you’ve learned what their teams actually DO, first!
The most wicked aspect – yes, wicked is the correct word – of the minimum wage debate is this one. Its advocates know full well that by raising the minimum wage, they are killing jobs, blocking off the escape routes for a community trapped in poverty. These city fathers are killing both the minimum wage jobs themselves, and also the far more important NEXT rungs up on those ladders as well.
These minimum wage jobs should be the ticket OUT for the working poor in the inner cities. Seattle’s John, Jim, Mary and Mabel had a chance before. Sure, they only got $9.47/hour at this job, when they started, but when they moved up, parlaying this experience toward a better gig as a junior sales rep or customer service clerk or assistant foreman or team leader, they had a trajectory upward toward a better life. Growing up, they had neighbors who worked as the store managers, the department managers, the foremen, the plant managers. These role models, these positive influences, will disappear from the neighborhoods when their jobs move away.
My first job paid sixty cents an hour, and I was happy to have it; I was learning a trade. I’ve done work for free, as a political campaign volunteer and as publicity chairman for theatrical troupes; these roles in my youth put me on the path to the career I have today.
Every year, college students all over the country invest all their hopes in getting the best unpaid internship in their fields, or a plum subminimum wage apprenticeship, because they know that what matters isn’t this month’s paycheck, it’s the career that that will later spring from that little seed.
The American Left is so obsessed with the dollar figure on today’s paycheck, they believe that a salary is an employer’s insulting estimate of what the employee himself is worth. It isn’t!
Rather, the salary is the employer’s estimate of what the JOB is worth. If the employee wants to earn more – as he or she should! – then the solution is to do the job so well that he or she can move on, quickly, to the next job, and then on to the better job after that!
Rather than preaching acceptance of an entry-level job and fantasizing that an employer can compensate that job at the level only deserved by some completely different and more important job, the city fathers need to inspire their citizens to strive for a better future by seeking, and finding, a career path at which they will excel.
As long as the American Left feels compelled to live in the NOW, always wanting every employer to do the impossible, and pay every employee two, three, four times what their jobs are worth, the result of their hamhanded efforts will continue to be the economic destruction of every region unlucky enough to fall under their control.
Question: How do you get a Detroit, a Cleveland, a Chicago, an East St Louis?
Answer: By electing a Seattle City Council, sitting back, and letting them do what comes naturally.
Copyright 2014 John F. Di Leo
John F. Di Leo is a Customs broker and an international trade compliance trainer. He studied acting in Chicago’s community theater troupes, studied history and political science at Northwestern University… but learned his trade by starting as a subminimum wage file clerk at a freight forwarding company, and moving up from there.
There is no substitute for learning a trade from the bottom up.
Permission is hereby granted to forward freely, provided it is uncut and the IR URL and byline are included. Follow John F. Di Leo on Facebook and LinkedIn, or on Twitter at @johnfdileo.