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Thursday, January 30, 2014

Who really benefits from a minimum wage increase?


The minimum wage debate will be bitterly argued about for a while—months, perhaps a year—and then like a bolt of lightning—the decision will be handed down. The fact that the argument has been started is enough to call this a fait accompli. The future is ten bucks an hour to start. It will probably be a progressive increase, perhaps over a three year period with the minimum wage increasing about one-dollar per year. This means that a minimum wage worker who now earns $15,000 per year, will next year be earning $17,000, and $19,000 the next, and so on. Whether they pass the increase or not, these minimum wages workers aren't going to be very well off either way. So what's the big deal?

Prices rise, not incrementally, but exponentially. It works like this: a farmer grows an ear of corn and he will be paid about six cents for that ear of corn. (Today's price for a bushel divided by 70 ears per bushel.) By the time that ear of corn finally winds up in the produce aisle of your local grocery store it will cost you anywhere from fifty cents to one dollar. That's a ten- to fifteen-fold increase from farm, through various middlemen, logistics, and finally to retail. What if the farmer were to be paid double the price? If the price paid to the farmer for that one ear of corn were increased merely another six pennies, by the time we paid for it at the store it would cost nearly two dollars, and that's a lot of money for one measly ear of corn. Each time the ear of corn passes through someone's hands its price doubles. You'll find this true in all areas of industry, manufacturing, construction, finance, etc.

I remember twelve years ago when Tennessee sales tax rates were increased by 1%. The next day the vending company that stocks our snack and vending machines increased the price of a 12 ounce soda from 50 cents to 65 cents. That's a thirty percent increase because of a one percent sales tax increase. These kinds of cascading increases based on the cost of doing business are inevitable.

The facts are indisputable. When you increase the minimum wage, prices for every good, for every service, for housing, cars, utilities, health care, entertainment, you name it, go up correspondingly. It's not just the price of a Big Mac or a movie theater ticket that will go up by as much as 50 percent; it's everything! So how are these minimum wage workers better off now that everything costs more? They make more, they pay higher taxes, everything costs more. They're still paddling the same leaky canoe.

Unfortunately, the rest of us are even worse off. I remember the last time there was a minimum wage increase. Since I already made more than the minimum wage, the only effect for me was that everything started costing more, yet my pay stayed the same. The labor unions understand this concept quite well. This is why unions ubiquitously demand that employers peg their graduated pay-scales to the minimum wage. So if you're in a union and the minimum wage goes up by 30%, congratulations! You just got an instant 30% raise.
The Center for Union Facts analyzed collective-bargaining agreements obtained from the Department of Labor's Office of Labor-Management Standards. The data indicate that a number of unions in the service, retail and hospitality industries peg their base-line wages to the minimum wage.

The Labor Department's collective-bargaining agreements file has a limited number of contracts available, so we were unable to determine how widespread the practice is. But the United Food and Commercial Workers International Union says that pegging its wages to the federal minimum is commonplace. On its website, the UFCW notes that "oftentimes, union contracts are triggered to implement wage hikes in the case of minimum wage increases." Such increases, the UFCW says, are "one of the many advantages of being a union member."
What a great reason to belong to a union! It's the main reason that unions desire minimum wage increases. The fact that union leaders use their vast horde of cash—which they forcibly extract from union members' paychecks—to help elect like-minded politicians is—from their point of view—pretty smart.

You just can't beat a system like that! It's called naked force, and when you think about it, it's pretty ugly. If the President and Congress could manage to pass enough minimum wage increases, pretty soon the entire nation would be clamoring! to join up with the AFL-CIO.

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