Struggling WITH, Not ON, Minimum Wage

My best girl is a lovely lady, but sometimes she will see something on the news that trips her trigger a bit.  It is then that we discover that people see and hear the news differently, and that even the closest of couples can find ourselves debating but not actually taking opposing sides -- we're advocating different subtopics.

This came up when one state or other -- Maryland, maybe -- was cited as having a plan to raise its minimum wage to a very high number, maybe $15.00 an hour.  That, of course, is twice the Federal minimum wage, and she brought up the whole topic of varying the minimum wage across the country based on standards and cost of living, and how no number that applied to Los Angeles made sense in Fort Wayne, Indiana.

That got me thinking -- too fast, for the discussion we were having -- about the different facets of the minimum wage debate.  Should there be a minimum wage at all?  Should it be only a state thing and not a Federal one?  What should one be based on?

That was too much for a simple spousal discussion, and I decided it needed more contemplation than really made sense, so I went to get a cup of coffee and slunk back into my office to work.

I start from what I believe to be a truthful concept: understand the problem before you try to solve it.  I think that is actually why we have so much antagonism, because different people are using the minimum wage to solve different problems, and its effectiveness can only be measured against the problem you think it is supposed to fix.

So I start with a USA in which there is no minimum wage at all, and where wages move to a pure supply-and-demand curve, based only the availability of labor in each market, at each level and skill set, and on the need for that labor by what I will call "industry" (by which I choose to refer to all employers, collectively).  In other words, the situation if we were to delete all minimum wage laws today.

What would happen?  We would likely have some $3.00-7.00/hour jobs created, low-end work, internships where the experience is more important than the money, summer jobs for kids, invented jobs to keep young people working and pay them a little -- some of which jobs would not exist save for there being no minimum wage.  The pay curve from $15.00/hour on down would evolve into something smooth.

That, of course, is why I innately oppose minimum-wage laws.  I believe that the demand for labor, and the supply of adequately skilled and competent labor, together produce a "value" that industry determines.  Industry will pay as little as it can, altruism aside, for that labor, but that also means that it will also pay more than its competitor for competent, trained and skilled labor that has more value.

To me, the problem is overly-regulated valuation of labor, forcing a price that industry has to pay that is higher than its value.  That results in industry charging more (inflation), adapting by using fewer people and, as we have seen when minimum wages are too high, higher unemployment.  The first solution to the problem that I see, is to remove the laws.

To others, they see what I do not see -- a connection between the needs of the employer and the needs of the employee.  The needs of the employee are of no innate interest to the employer insofar as we are defining the value of the employee's effort.  Of course, the happiness of the employee, the value of their experience and contentment with their environment produce better productivity; we know and factor that in.  But if the employee wants a new car, there is no basic change to the value of that employee that would oblige the employer to raise his wages accordingly.

A minimum wage, then, rationalized by the needs of the employee (the notion of a "living wage"), does not make sense.  It is imposing a cost on top of labor that is created by factors independent of the value that the employee brings to the table by virtue of his ability.

But let us even accept that a minimum wage exists and will be with us, and is now factored into the fabric of employment costs.  Then, a Federal minimum wage makes no sense at all, as long as the states pass their own laws in that regard.

I say that comfortably.  If a minimum wage exists because of a response to the perceived needs of the employee, it should be set at a level that represents those costs.  In other words, if it should be affected by the  cost of living, well, costs of living are substantially different depending on where you live.

So if the USA then passed a Federal minimum wage law, or reset the current one, even though I believe it is wrong-headed to do so, it should be set based on the economic needs in Fort Wayne, Indiana, the least-expensive city in the USA to live, not in Los Angeles or New York, and not in some "average-cost" community.  To do otherwise is to subsidize the economy of the expensive cities at the expense of jobs in Fort Wayne, right?

States can do whatever they want, of course, and should.  They are locally responsive, and Constitutionally allowed to address the needs of their citizens.  For them to implement economic absurdities like a $15.00/hour minimum wage, is to have to deal with the impact of that decision, and then have to respond to the citizenry of that state when companies flee (as they have in California already), taking jobs with them.

I do wish this discussion could be had rationally, but we will not readily come to agreement about whether employee needs should be mandated into law, as far as having impact on the demand curve for labor.  I do not want to see employees abused or taken advantage of, but I also want everyone to work to be able to prepare for a job they can do, and find a location where they can live on what they can make -- there.

The missus and I, business owners both more than once,  will surely have more to chat about there.

Copyright 2018 by Robert Sutton
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