By John F. Di Leo -
This periodic saber-rattling of the American Left – about the alleged “need” to force other people to pay employees more than they think a job is worth – masquerades as a show of solidarity with the underpaid denizens of America’s lower class. But it’s malicious and destructive, as it warps the public understanding of the market, and it undermines a desperately-needed understanding of the right paths needed to reach the American Dream.
The current minimum wage is $8.50 per hour. The cause of the moment is to nearly double it, to $15 per hour, though there’s also a lesser, and even more radical, national effort to nearly triple it, to $22 per hour. Why? Because the minimum wage is not a living wage – meaning that $8.50 per hour is not enough “to live on.”
This of course requires a further definition: what IS enough to live on? Honestly, that varies by location, age, and circumstance. Food, shelter, clothing, and other necessities of life have different price ranges for men than for women; they differ from city to country, from children to seniors. Do you support only yourself, or a family? Do you need to travel for work? Are you in an area with a high cost of living, or with high transportation costs?
If government is going to set a minimum, such a minimum should take such differences into account… but it can’t, of course. So the politicians set a random number, adjust it upwards a little bit every few years to account for some of our inflation, and leave the subject otherwise untouched. Most elected officials have at least some basic understanding of the damage that unaffordable increases in this floor would do to the economy, so they don’t meddle nearly as much in the USA as they do in some other countries. But it’s still too much.
There have been subminimum wages set – some jurisdictions have had a “teenager minimum” that only applies to high school kids living with their parents, and most have a special subminimum wage for hospitality workers who get tips, on the theory that the tips can’t be legislated but they shouldn’t be left out of the mix.
But there are larger questions. Who pays this wage? And what does the minimum wage mean to the person paying it? And what does this number represent to the person receiving it? It’s about a lot more than the funding of the necessities of life.
Who Pays the Minimum Wage?
Many types of companies have low-skilled, entry-level, or other low-salaried positions, all of which come under the scope of a minimum wage. Restaurants have busboys, waiters, bartenders, assistant cooks, as well as managers, head waiters, chefs and accountants. Manufacturing plants have janitors, assemblers, packers, and receptionists, as well as engineers, accountants, foremen, lawyers, salesmen, and buyers.
Each of these positions, while critical as a group to the company, has a different specific value. The more complex a business, the wider the range of employees there may be. Nobody but the company itself knows how easy or difficult it is to get the right people for each of these jobs, how important is their individual contribution, how capable they are, how indispensible.
In one area, great buyers may be a dime a dozen, while qualified engineers may be so rare that they command a huge salary. In another, it could be reversed; a city with a great engineering school may be flush with cheap engineers for hire, but have few good accountants or salesmen.
Each business sees these challenges and handles them, learning to establish appropriate pay ranges over the years, using the ease or difficulty of its own personnel practice to drive it. Companies get a reputation for a better or worse work environment, a better or worse career track, better or worse benefits, better or worse salaries. Adam Smith’s “Invisible Hand” applies here: even without legislation of any kind, a company will pay what the market will bear, if left alone to do so, because of competition; if it underpays good people, it will lose them, and it won’t stay successful for long.
As the minimum wage enters this process, it brings distortions, sometimes severe. The minimum wage doesn’t only affect the employees receiving it; it affects everyone else in the organization.
A fast food place might want to pay its cashiers and line workers $5 an hour, its line managers $14, its branch manager $25. But the government makes them pay $8.50 to those cashiers and line workers, then that leaves less in the pool for the better jobs; now the line managers may only get $10 or $11, though they deserve better, and the day and night branch managers $18, though they deserve far more. The more they provide in benefits, from 401K plans to healthcare and dental care, the less is available for the hourly wage. No matter what they pay their employees, they still have the same total pool of salary to distribute.
Every increase in the minimum wage therefore depresses other benefits, as well as the salaries to other non-minimum wage employees. Company-paid time off, healthcare, life insurance, company-subsidized cafeterias and fitness rooms – these are all valuable as well, to all employees, and every time we raise the mandated minimum wage, we force the employers to cut back on some of these benefits to everyone.
Unfunded Mandates
The Left is always calling for businesses to do more for their employees: longer maternity and family leave, more vacation time, onsite child care, marriage and family counseling, the list is endless, and many are indeed good ideas, when affordable. While these remain optional, the private sector can at least leave the matter to the Invisible Hand.
More successful businesses with good margins can afford to be more generous. Less successful businesses, or more accurately, good businesses in industries with tighter margins or greater competition, cannot.
But when the government starts mandating such benefits, it wreaks havoc on the economy.
To the company that could already afford to give three weeks of vacation to its employees, a three-week vacation mandate is no change, but to the very different business down the block, one that only gave two weeks before, we’ve now stuck them with a new 2% tax – on their gross, not on their net like income tax assessments – because they will now get one less week per year out of the 52 from their entire payroll.
Remember the many things government already forces companies to give their employees. Some are reasonable, like a guaranteed lunch break; others can be crippling burdens, like the 7.5% company match on Social Security and Medicare that we don’t even see on our paychecks, but which companies must pay on behalf of every employee based on his salary. You know how much they take from you for Social Security and Medicare? They actually take double that; the forms just don’t allow the company to show it on your pay stub, so most employees are completely unaware of it.
When conservative economists complain about the rotten deal that Social Security presents to the American retiree, socialist economists dismiss them by pointing out the apparently wonderful return on investment that the reported numbers provide. The socialists say that we usually get back much more than we put in… and they can do so only by conveniently leaving out the fact of this company match. In fact, you’ve put in double what the records show, because your employer would have had 7.5% more to pay you if it weren’t for this pernicious, hidden trick. But we digress.
The government mandates so many expenditures on behalf of their employees and customers... Washington mandates that many businesses add handicap-friendly parking spots, handicap-friendly doors and bathroom stalls, ramps to accompany staircases. All these are well-intentioned, but they place an expensive burden on many a business.
In the old days, the wheelchair-bound would gratefully give their business to those who thus invited them by making such accommodations voluntarily. This new mandate removes that reward for those who had accommodated them willingly, and raises the barrier to entry for all businesses, as construction and rental costs skyrocket to accommodate the ADA.
The minimum wage cannot be viewed in a vacuum; it’s just one part of an employment picture that gets more costly, more punitive, every year. One might ask, why should a company stay here in this environment; why not just pull up stakes and move to some more welcoming country, some country that doesn’t nickel-and-dime its employers into the poorhouse?
Well, if you look at the industries we have lost, and the country of origin statements on the products on store shelves, you may see that you’re not the first to ask… and that, in fact, many employers have already taken decisive action.
Depressing Employment: Punishing a Jobseeker with a Minimum Wage
Personally, when I think of the effects of a minimum wage, I find it best to use round numbers for simplicity and ask what a minimum wage will do.
Imagine a clothing store, like the Macy’s or Victoria’s Secret shops that saw employees walk out on Tuesday to participate in this protest. Or imagine you run a fast food place, like McDonald’s or Subway; they also had employees demonstrating for the Democratic Party’s latest picket.
You determine what you can afford to pay by your other operating costs, your sales volume, your profit/loss ratio. Say you can afford $20 per hour for staff – that could get you one employee at $20/hour, or two at $10/hour, or four at $5/hour. Or say you have a bigger place that needs more staff, and you can afford $100 per hour for staff – that could get you five at $20/hour, or ten at $10/hour, or twenty at $5/hour.
Each business has different staffing needs. But if a business has only $20 to spend on salary, he’ll go from five employees at $4/hour to four employees at $5/hour. If he has to raise their pay to $6/hour, another employee will have to be cut. If has to raise them to $10/hour, he’ll be down to just two employees. That may seem great for the two who remain, but not for those who had to be cut.
The difference of a dollar or two an hour, when multiplied by all the staff of a business, large or small, has an effect on the company’s service level. If a mandated wage hike requires a reduction in staff to fund it, the anger may be directed at the company, but it won’t be their fault. It’s the nanny state liberals who’ve put them out of business, by forcing an employer to cut employees he would never have cut on his own.
The Minimum Wage and You
But there’s another issue to consider when we talk about minimum-wage jobs, and it’s more important to the jobseeker than all the others. What is the job for?
Don’t jump to conclusions here. Some may say “all jobs are the same, they’re to make money.” But that’s not true.
Future teachers take entry level jobs as student-teachers or substitutes, hoping to break into the field so they can get a full-time job later. A low hourly salary, or even a free internship for college credit, may make the job worthwhile. Student teaching at the right school can provide experience worth far more than the paycheck, when it’s applied to the young teacher’s next application for a full-time gig.
Radio/TV/Film majors take internships that involve getting coffee for the director, photocopying scripts for the cast, knocking on the door of a star’s trailer to wake her up for shooting, running to the store to buy batteries for the microphone. The pay may be terrible, but it’s an entry-level job; it’s not meant to be permanent. The real purpose of the job is to learn the ropes of a business by being inside, rather than just studying it from outside as in college. You might be happy with an $8.50/hour gofer job at a basic cable station, but you might be even happier doing the same job for free at a major network, or on a film set, or the radio station that owns the afternoon drive timeslot in that market.
This isn’t to say that the money doesn’t matter, just that the money today may not matter. There’s so much more to an entry level job than the paycheck. The goal of an entry level job is to get into a career, then move up, out of the entry level, to begin climbing the rungs of a career ladder.
It’s the same thing in retail, in manufacturing, in distribution, in trucking. You may start as a cashier or packager or receptionist, but you’re not supposed to stay there. In retail, the goal is to be impressive as a cashier, so you can move up to line boss, assistant manager, manager. In restaurants, you may start as a busboy, but move up to head waiter, manager, bartender, catering sales, even chef. In an office, you may start out as a file clerk or assemblyman on the line, but soon move up to tactical buyer or customer service rep, then to salesman or product manager, then plant manager or divisional vice president.
This is no exaggeration; this is how it’s done, how it’s meant to be done. It’s certainly true that there are people who don’t move up that far, but if people want to, there’s no reason they can’t move up somewhat, out of the entry level and up to the midlevel.
Every employee at Chick-Fil-A or Wendy’s can’t rise to store manager; there aren’t that many such jobs to be filled. Every assembler on a production line can’t move up to become plant manager. But every employee can move up part of the way – to be a shift boss, an assistant manager, and then use that experience to go across the street and get into management somewhere else. All it takes is a mix of ambition, talent, and work. Almost nobody should stay in an entry-level job for long.
That’s where the money should be. Not in the entry level job, where it’s all about learning the ropes, getting a start, finding out whether this career is the right match or not. In our system, the better paychecks start showing up when you break out of that entry level and start applying what you’ve learned, in another job where you can be more valuable, and for which your employer can afford to pay you more.
The Self-Limiting Lie of the Living Wage
The nannies who wail about “the need for a living wage” do far more damage than they could ever imagine. As we’ve seen, by forcing employers to raise the pay of every employee, they are also forcing them to hire fewer employees. Rising minimum wages have always contributed to greater joblessness rates; it’s a mathematical certainty. In a time of unprecedented unemployment, the Democrats today want to increase unemployment levels even more with a minimum wage increase. How typical.
Also as we’ve seen, such meddling with the marketplace drives businesses out of America entirely. We’ve seen whole industries give up on the United States and move production to Mexico, to China, to India. We can’t blame them, but see what it does to those left behind: fewer opportunities for those people looking for an entry level job, looking for that first foot in the door of a career. And fewer opportunities for those who got that entry level job, and excelled in it, and are now looking for that first step up. A town with only five manufacturing plants only needs five plant managers. If there were ten plants, they’d need ten plant managers. If there were twenty… just imagine the opportunities that would abound if our governments weren’t driving business away every day as they do!
But most destructive of all is what this “living wage” hogwash does to the individual, in terms of his own ambition. This nation was built on ambition. We didn’t have a foundation of manufacturing plants, roads, cities, civilization… we came here from Europe in the 1600s and 1700s, with only ambition, a work ethic and a core of Western Civilization that inspired us to strive until we thrived. And it worked.
Everyone with an entry level job should be thinking every day of how to learn from it, excel at it, shine among his fellow employees… so that he or she can be noticed the next time there’s a promotion opportunity. Low entry level salaries encourage this drive.
People need to struggle at the bottom, so that they stay unsatisfied with their current lot in life. That’s what gives people the energy to go to night school, to work two jobs, to write a book in their spare time, to tinker in the workshop and invent things, to start a business in the garage that grows to become a conglomerate.
More than anything else, it is the difficult struggle at the bottom that has helped people improve themselves. Our society must never stop wanting the best for everyone, wanting to spur them forward to grow and improve their lots in life.
If a “living wage” is a tiny tenement apartment and cheap generic food, then no, I don’t want that for anyone, long term! I want the minimum wage to be a job held by a student living with his parents, a part time job held by a moonlighting person seeking to change careers. It should be a step to an exciting life in the American Dream, not some dreary acceptance of remaining on the bottom for one’s whole life.
Nobody is supposed to be a cashier his whole life, a file clerk his whole life, a drive-through fry cook his whole life. Our system is supposed to present opportunities so that everyone, from all walks of life, can rise up from that kind of beginning to gain a happier existence in an ever-expanding middle class or even the world of the wealthy.
And anything that hampers that kind of growth, either short term or long term, from too-high minimum wages to the many other crippling regulations of the modern nanny state, must be opposed, must be curtailed, so that the United States of America can return to its former position as the bright, shining City on a Hill, a beacon of opportunity that the world once respected and strove to emulate.
Copyright 2013 John F. Di Leo
John F. Di Leo started out as a file clerk as a boy, filling out government forms in a Chicago small business, proudly and happily earning subminimum wage. That low-paying but educational beginning set him on the career path to become a Customs broker and international trade compliance trainer for a worldwide conglomerate; the system worked for him, and it can, and should, work for everyone, if we don’t let the Left squash such ambition by the destruction of the American Way.
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