August 1, 2004

Hike in Minimum Wage Laws Boosts Out-Sourcing

Here we go again on the minimum wage roller coaster – climbing slowly with great energy to a new crest that will be followed by momentary exhilaration as we coast with gathering speed to a new low.

Ever notice that successive climbs and dips are shorter in duration and thrill?

Of course, physical analogies to economic processes aren’t realistic. But so is the assumption that purchasing power of wage earners can be improved with the stroke of a pen.

Democrats have made a hike in the minimum wage from $5.15 an hour to $7 a leading goal of their election platform. Wealthy Republicans squeezing the poor, etc.

Labor groups in Florida have gathered nearly a million signatures on a referendum petition to raise the minimum wage here to $6.15.

Small businesses oppose it as a non-productive increase in costs – read that inflation.

There are several myths at work here. Foremost is that "the working poor" receive an economic boost in their standard of living by minimum wage laws.  

In fact, they do enjoy about two months of increased purchasing power. However, all other labor costs ratchet quickly to maintain wage relativity.

The only long-term effect is that low-skill jobs are replaced with labor saving equipment and/or decreases in quality and quantity of product.

The minimum wage hocus-pocus is the greatest fraud in history for the people who are supposed to benefit.

Of the one-and-a-half percent of the work force that earns the minimum wage or below (about two million people), more than half are below age 25. A fourth of these are between the ages of 16-19.

In short, low-paying jobs are mostly entry-level. Competent workers move up the ladder.

The greatest help we can provide under-educated under-skilled workers is to eliminate minimum wage laws. Competition is harsh, but it pays rewards for strivers.

It is fair to ask a pertinent question. If fiat can produce wealth, why don’t we raise the minimum wage to $50 an hour? Then, we could all get rich mowing each other’s lawns.

The second greatest misconception is that minimum wage laws hurt small businesses. I challenge anyone to find a hamburger flipper in Charlotte County making $5.15 per hour or less.

Most small businesses meet the competition for labor because they have to.  

The fact is that big chain stores have the clout to cap hourly wage rates. They have the resources to resist unrealistic wage demands.

When a worker’s pay goes up $1, the employer’s cost goes up as much as $1.20 for salary, matching Social Security taxes, unemployment compensation and worker’s injury compensation.

It was diabolically clever of Congress fifty years ago to order private businesses to pay social costs the government desired for its citizens but could not afford.

Hey! If the government – with its infinite power to help itself to everything -- can’t afford something, it ought to be clear that you can’t squeeze blood from a turnip.

America is not yet a communist country that tries to micro-manages every jot and tittle of a complex economy.  

Big employers have the knowledge and cash to buy automated machinery or move jobs abroad where low-skilled work can be performed at half the U.S. rates.

The bald truth is that big businesses – in response to big government dictates – manage to stay alive in a global economy by (gasp!) out-sourcing jobs to foreigners.

Fortunately out-sourcing is a two-way pipeline. Dollar wise, the U.S. attracts more foreign out-sourcing of higher paying jobs than is shipped out by our big companies.  

Tell that, however, to a textile worker in South Carolina. Ask the same thing of a Japanese automobile company workers in Kentucky who earns more than General Motors or Ford workers in the next county.

We live today in an inter-dependant world. Call it survival of the fittest. Representative democracy and capitalism have the most arrows in their quivers.

Education and training are the weapons of choice. And, as historian Herbert George Wells famously observed in 1920: "Human history becomes more and more a race between education and catastrophe."

All we can do is ask our duly elected politicians to get realistic – lead, follow or get out of the way.

Lindsey Williams is a Sun columnist who can be contacted at linwms@lindseywilliams.org