Wednesday, November 08, 2006

Post Election Issue: Will Minimum Wage Increase?

With the Democratic victories in the House and perhaps in the Senate, a new legislative agenda is coming. Commentators have no end of analysis coming on the reasons for the shift in power, and I have little to add to that topic. No doubt disaffection with the war influenced some voters, though probably more of the Republican base was disaffected with a lack of a cohesive ideological position. That is problematic, and surely there will be some lessons learned for the next round of elections in 2008.

One of the wedge issues that the Democrats attempted to use this past term is the matter of the minimum wage. For some people, the minimum wage is a matter of social justice. It reflects a commitment to paying people enough to live on in any job they choose. While I agree that people need to be able to earn a living, I also believe this approach fails to consider the varying circumstances of people who work in lower-wage jobs.

My nephew, Steve, provided his concerns to me about this issue earlier today. Steve and his lovely wife, Anita, own a coffee shop and ice cream store in Rockbrook Village - Java n' Ice. It is a wonderful place to have a beverage, some gelato (peach mango is absolutely fabulous), and enjoy some relaxation in a pleasant environment. It is a community-building place, as every time I come in I see Steve and Anita visiting with customers, and customers enjoying the experience, often meeting new people and sharing the pleasant aromas and tastes of exquisite coffee and other treats. (I tried a Breva last week, and it was out of this world. This comes from a black coffee guy - but I am learning how to live after my birthday).

Anyway, Steve hires some terrific young people who help him at the store, and he pays them above the minimum wage. Most are high school students, and they work a few hours a week. They get not only their income, but also some training and experience that will prove valuable for their future careers. Training is not insignificant, as Steve tells me the training costs for a new employee run into several hundred dollars - pretty significant for someone who may call it quits because he wants more time with his girlfriend.

After the election, one of Steve's first concerns: will the minimum wage increase? This would significantly change his cost structure, and I am told it will cause higher prices for his products. Ultimately, it may also mean fewer of these jobs are available for young people, meaning they get less opportunities to grow skill sets they need. Though some might argue that the federal minimum wage is largely symbolic, as often state or local laws impose higher wage levels, it does potentially impact employers like Steve, and the terrific young people that work for him.

So, we will see how much the politicians care about the impacts of their decisions in this area. Mollifying the felt need to do good is problematic, especially when it does harm in some quarters.

1 comment:

Anonymous said...

Hi Ed,

I think the democrats won simply because they are NOT Bush. The democrats did what they needed to do to get elected. They said nothing and had perfect timing.

Democrats strive to help the have nots. The minimum wage has not increased for some time and should.

If minimum wage brings a company to bankruptcy, it is a bad business model not bad gov't policy. Let's look at the numbers.

First, say the democrats get the minimum wage to raise by $1.5. Second, say there are five part time workers on minimum wage. Third, say they work 20 hours per week. The business's operating expenses increases by $7,800. That is it.

Now what does the economy get? Oh wow. The economy gives a poor person more money power. This will allow him to spend on goods/services he needs because he did not have this money before, since he is poor. This is the principle of the marginal utility of money. The rich get to choose when to spend, the poor spend immediately, thus boosting the economy on the macro scale.

An equalized economy normally lowers unrest, allowing space for progress.