The Minimum Wage, Revisited

The argument is made that raising the minimum wage will cost jobs.  However, studying this, I fail to see how?  I was an employer for a number of years running a small security guard agency.  Did the minimum wage have an effect upon my hiring?  Did I hire fewer people because of an increase in the minimum wage?  At least in the security guard field, the minimum wage had little if any effect upon hiring.  The reason is simple enough…  I only hired people when I had work for them to do.  If I didn’t have work, I didn’t hire people.  Employers do not hire people unless the people they hire are able to be useful and needed by the employer.  This I believe would apply to any business.  In general businesses that pay minimum wage do not need highly trained people.  The average security guard job could be done by anyone with an 8th grade education.  The same is likely true of most minimum wage level employment.  These are not jobs that require much in the way of training by the employer.  Businesses that need educated or experienced or trained people all pay more than the minimum wage.  With the exception of agricultural labor, any ordinary job that pays minimum wage (fast food restaurants for one) isn’t going to be needing people with anything more than a grade school education.  The ability to read and write, follow directions is generally all that you need.  The same is true of most retail jobs.  Today’s cash registers calculate change, so very little skill at math is required.  In any case by the time you graduated from the 8th grade, you no doubt knew how to make change and do the simple forms of “figuring” that would be needed.

Somewhat more knowledge and education are needed for delivery type jobs and truck driving, but these jobs generally are paying more than just the minimum wage as more skill is required.  I’m trying to think of a job where a sub-minimum wage would be justified.  Even grass cutting, leaf raking, snow shoveling jobs effectively would pay more than minimum wage based upon their true per hour rate.  As a matter of fact, the lawn care I have hired done costs closer to $15 an hour and even snow shoveling was at about the same rate. These are tasks that can be done by any physically able person.  It is true that in some parts of the country with high unemployment along with immigrants here illegally, it is possible to pay wage rates below the legal minimum, but this also indicates that there are far more people looking for work than work looking for people to do it.  

During the “Clinton Boom” of the last years of the 20th Century when unemployment fell to levels not seen since the 1960’s, the starting wage for McDonald’s increased to $8 an hour when the actual minimum wage was $5.15.  So we can see that wages do go up as unemployment drops.  The same workers that were hired earlier when unemployment was higher were paid minimum.  But once a sort of “labor shortage” came about, the bottom wage offered increased until sufficient workers could be found to do the work needed.  As these were “service industry jobs” there was likely no incease in productivity, but a shortage of workers forced employers to raise wages for the time being.  Today of course with high unemployment it is likely that employers could pay wages lower than the current minimum wage of $7.25 and still get all the workers they wanted depending upon the nature of the work.  In effect the minimum wage sets a “floor” under wages that would not exist otherwise.  As for the “myth” of the minimum wage being a “training wage”, the facts are that very little training is needed for most minimum wage jobs to start with. These are not jobs that require very much in the way of skill to do.  And as I stated before, they are also jobs that could be performed as a rule by anyone with an 8th grade education.  High school would not be necessary.

No doubt employers would like cheaper labor if they could get it.  This is why so much manufacturing is now done in “low wage” countries like Mexico and China.  Unfortunately most “service industry jobs” have to be performed where the service is needed.  That means if you operate a “service industry business” here in the US, you are going to have to use American workers to do the work. Which means you have to pay minimum wage in most cases.  There are exceptions to this in the case of “tipped employees” which can be paid a much lower minimum wage since they are expected to make up the difference in the tips paid to them. 

From historical observation, increases in the minimum wage are passed through in the form of higher prices.  However there is not a dollar to dollar relationship because most service type work involves more than just “labor”.  The fast food industry has other costs than just the cost of labor.  About the only exception to this is where “labor” is the only thing supplied, such as in the security guard industry.  There the increase in fees charged has a much closer relationship to wage rates. It isn’t perfect even there since there are other costs involved besides just the actual wage paid.

Without the minimum wage during conditions of high unemployment wage rates would drop by a considerable margin. This would have an economic effect because reducing “demand” (people with money to spend) means that suppliers of goods and services would find fewer buyers of their goods and services.  This would likely result in additional unemployment.  A good historical example of this was the Great Depression where this is exactly what happened back then.  Recovery did not take place until there was sufficient consumer demand due to WW2 to make it worthwhile to hire people to produce goods and services.  There does appear to be a relationship between employment and the success of most businesses.  With little consumer demand the producers of goods and service find fewer buyers, and in many cases will end up going out of business due to lack of sales.  The history of the Great Depression proves that this is true.  So without the minimum wage we’d be worse off now than we are.  Less consumer demand means less employment because business needs fewer workers to produce the goods and services that can be “sold”.  There is also a movement towards development of lower cost businesses that do more business per employee.  Walmart is a good example of this.  Walmart’s sucess is due to lower labor costs per unit of sales.  They also have a inventory control system that operates on a “just in time basis” so that the store is neither overstocked or understocked as a general rule.  Plus because Walmart can buy massive amounts of goods at a time, they can get a better price on what they buy.  This allows them to sell at a lower price and still make a good profit on sales.  And of course most Walmart employees are not paid all that well, which also means that their labor costs are lower than their “competition”.  Unfortunately much of what Walmart sells is made outside the USA, so the jobs created by Walmart tend to be outside the US.  In the long run this may prove to be something that will effectively harm the US to the extent that we will no longer be able to afford the economic costs of maintaining the world’s most powerful military along with all the social benefits that we are providing to our own people.  Something I’ll leave for another post.

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About muskegonlibertarian

77 year old retired owner of a security guard agency. Member of the Libertarian Party.
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One Response to The Minimum Wage, Revisited

  1. John Connor says:

    Something’s not right here, but I did not sleep last night so I don’t know if I should dive in to what you said. I’m going to have a smoke and think about it.

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