Minimum wage hike more political than economic

Clothing retailer GAP which is also the parent corporation who owns Banana Republic, Old Navy, Piperlime, Athleta, and Intermix has announced that it will raise the minimum wage it pays employees to $9 in 2014 and $10 in 2015.  That’s great!  However, the notoriously Progressive website Think Progress misses critical details of this fiscal move.

Think Progress

“To us, this is not a political issue,” GAP Chairman and CEO Glenn Murphy said. “Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.” In a release, the company argues that increasing the minimum wage will help retain “attract and retain great talent” and improve customers’ experience.

First of all, despite what GAP CEO Glenn Murphy says, this move is entirely political.  There is now a big political push from big name Democrat pols to hike the minimum wage to $10.10 per hour.  Coincidence?  No.  They want to be in the headlines, and memories, as being the first to do it out of the kindness of their hearts.

Additionally, GAP is a retailer who strives to attract young and hip customers.  America’s youth is pretty impressionable.  They were already persuaded to vote for a president who made many promises and under-delivered on the ones he happened to keep…twice.  GAP can’t afford to have their customers thinking they’re greedy evil capitalists who only pay minimum wage.

While many retailers claim that they cannot afford to pay the minimum wage without firing employees or raising prices, research shows that companies paying low wages stand to benefit from the huge stimulus a wage hike would bring to poor workers who spend most of their income on basic needs like food and clothing. Even Walmart, one of the most notoriously low-paying companies, announced Wednesday it would consider supporting a minimum wage hike, acknowledging that it would generate extra pocket money for Walmart’s typically low-income customers. Additionally, employees tend to work harder and stay at their company longer after their wages increase.

Here’s where TP begins to derail.  The above is all true.  However, employees work harder, and they have more money when their wages are higher…in relation to the minimum wage.  Much of what it costs to live, i.e., the costs of products and services have some base in what the minimum wage is.  When the minimum wage increases the cost of doing business increases.  Eventually the employee making $10 an hour as the minimum will have the same buying power as when they earned $7.25 an hour.  Then they’re right back where they started.

Employees often relate their personal value to their company with what they’re paid.  I think this is a mistake because it speaks to the value of the task, not the one who performs it.  But that’s neither here nor there.  Workers work harder when they’re paid more, yes.  But that’s because it’s more in relation to others.  If they’re making the minimum at $7.25, they’re still making the minimum at $10.10.

GAP’s announcement comes just one day after the Congressional Budget Office released an analysis arguing that raising the minimum wage could reduce total employment by about 500,000 workers.

When a company voluntarily raises its wages, it’s because they’ve assessed their finances and determined they can adjust, absorb, or afford to do it with little or no financial detriment to their bottom line.  When the government steps in and imposes an increase in the cost of labor, it doesn’t take anything into account except how many more potential voters they’ll yield.  It doesn’t consider whether a business can afford the hike.  The government, like Think Progress, holds up billion dollar corporations who they feel have too much money in order to make their point — never the thousands of small businesses who just make payroll as it is.

There’s a much larger issue if the minimum wage is increased by such a large ratio: you dramatically increase the number of people who “only” make minimum wage.  Only 1.5 million employees make minimum wage. Yes, only 1.5 million, and note how Progressives tell us this is a dire tragic state of affairs.  The vast majority of hourly paid workers earn more than the minimum.  When the minimum increases, that number explodes.  One source claims that more than a quarter of private sector workers earn less than $10 an hour and according to the Department of Labor, there are 115.7 million private sector workers.  Think about this, when the minimum wage increases to $10 an hour, you’ll immediately have 29 million workers only making minimum wage.

Do you really think these newly minted minimum wage workers won’t be exploited for political gain?  Forget the costs.  This statistic alone will be used as  propaganda for decades.  Not only will such a large increase ruin an already dilapidated economy, it will ensure that an already dishonest political atmosphere becomes downright fraudulent.

Comments

  1. John,
    Of course the minimum wage argument is completely political. The dollar amounts just aren’t enough to significantly change anyone’s standard of living.

    Further, what gets lost on this is how it will increase the wages of everyone who is paid hourly. Many union contracts have wages indexed to the minimum wage, In my personal situation, I work part time for a regional home improvement company. For this company, almost every position starts above minimum wage. Further, there is a series of virtually automatic raises every 4 months as well as a premium for weekend hours and profit sharing for virtually all but the most part time employees. So, all in all, not a bad deal for anyone. I’ve been there part time for about 6 years, and my base hourly rate is currently $9.60/hr. Or to put it another way, Minimum wage plus $2.35. So, if the minimum wage goes to $10.10, then a new hire would start out making more that literally every employee in the store. How would anyone justify this? Is it even rational that a student who get’s hired for a summer job would start out making more that a full time employee who has been around for years? Is there any possible way that this summer hire brings more value to the company than their coworker who has been employed for several years?

    It seems obvious that the only way to remedy this situation would be to provide an hourly rate based on the difference between the old and new minimum wage. I’ll be honest, as one who stands to be effected by this, I personally say, yes. Please give me a $2.35/hr raise. I’d love it. Of course, it would play hell with the whole profit sharing deal. It would probably result is fewer employees hired, etc.

    But selfishly, I say bring it on.

    • Your company would likely do away with many of the financial perks you get to offset the increases. Less or no profit sharing, fewer, lower, and less often raises, lower or no weekend differential.

      all these progressive organizations proclaiming that the increase would only cause a 1 or 2 or whatever % increase in prices probably arent mentioning or realizing there’ll be other offsets to compensate. Make no mistake, they wont just eat the losses.

  2. John,
    You’re more than likely right I can guarantee that the billionaire owner won’t cut back on his share. (I just realized how much that sounds like some liberal. I’m not saying he doesn’t deserve it, just that he’s going to find somewhere to make up the difference.) It’s interesting that the companies and employees that will potentially get hurt by this are the ones who already pay more than minimum. The folks who are actually making minimum wage will likely see the increase eaten up as prices rise.

    The point is that it places the progressives as the folks who want to help the little guy, which will simply elicit an emotional response from the low information folks, while giving themselves a club to use against their political foes. None of this (P-BO care, min wage, etc.) is actually supposed to do anything but win elections.

  3. Craig,

    So what if you sound like a liberal? I say the same thing. The millionaires and billionaires won’t cut their shares. The difference between us and liberals is that we recognize there isn’t really a way to prevent the rich from doing this while maintaining a freedom-loving society. Rather than give up freedom, I’d rather work hard and become a millionaire or billionaire myself. Is hard-work a guarantee? Of course not. But at least I have a chance. There is NO chance to do so in socialist societies, as history proves.

  4. T.
    I agree. I don’t begrudge said billionaire his billions. In reality, he took the risk, he built the company and he deserves to be rewarded for his efforts. It just sounded so unlike me when I typed the sentence.

  5. Who cares why a company wants to raise their wages? Are you claiming that the only reason a company should raise the minimum wage is out of the kindness of their heart? Your reasoning escapes me. Gap wants to raise their base wage to $10. They want to do this because they believe it is beneficial to their company. How on earth do you find some reason to fault this?
    Because they wouldn’t have done it if someone in the government hadn’t pointed out that a full time worker ought not to need food stamps?

    As to whether or not this raise would result in more spending power, I would like to point out that in the period between 1997 and 2007, when the minimum wage was static at $5.15/hr, the poverty threshold increased by 32%. In the period between 2007 and 2014, when the minimum wage increased 3 times, the poverty threshold only increased by 8%. This seems to contradict your assertion that an increase in minimum wage results in a correlated reduction in the value of earned dollars. Could you explain how this is possible?

    The idea that there exists some dichotomy between either making a tidy profit or unbridled socialism is plainly false and patently ridiculous. Companies could pay every employee a living wage and still make a profit. The minimum wage could be $10/hour, $12/hour, $15/hour- and the Waltons are still going to be billionaires.
    You and Terrence are talking as though $10/ hour might as well be nationalizing and redistributing all the wealth in the nation.

    • All the poverty threshold means is the government defined what it means to be in poverty. It doesnt mean people got poorer. In fact in that time net worth rose and so did the average income.

      Forcing such a large min wage doesnt take into consideration tjat the min wage doesnt just apply to walmart and mcdonalds. The CBO has found the increase would result in at least half a million jobs.

      • Before I tell you how the poverty threshold is calculated, or show you how the method has not changed since 1959 (and therefor gives us a static baseline for the spending power of a dollar over time), I’d like to ask you a question.
        Do you honestly believe that if the government made up the poverty threshold “off the cuff”, that it would choose to have it raise by 30% during a decade that had for seven of those years a Republican President who did not raise the Minimum Wage, and then have it raise by only 8% during the seven years of a Democratic Administration that would benefit from having the inflation of the Poverty Threshold as a tool to raise the MW? This seems entirely counter-intuitive to how an administration might use an arbitrary number to forward its goals.
        Why, if the government can choose to define the PT as whatever it wishes, would it increase at levels that seem to undermine the political ideology of the party that has the power to manipulate it? Explain.

        • What I’m saying is regardless of which party is in power, the poverty line is defined.

          My point in the post is that making 29 million workers minimum wage workers will be exploited.

  6. But you claim in your post that

    Much of what it costs to live, i.e., the costs of products and services have some base in what the minimum wage is. When the minimum wage increases the cost of doing business increases. Eventually the employee making $10 an hour as the minimum will have the same buying power as when they earned $7.25 an hour. Then they’re right back where they started.

    I’m suggesting that we can test that claim by looking at the historical minimum wage in relation to a defined measure of the cost of living, like the Poverty Threshold. If it is true that raising the minimum wage results in an increase in the cost of living, then it seems given that in periods where America has had a static minimum wage cost of living would remain relatively static, and in periods where the minimum wage increased multiple times cost of living would increase more rapidly.
    You made the claim, not me. I’m just offering you a way to test something that you stated as a fact by is in fact specious.

  7. Fine.
    Let’s talk about this new claim you make that you never made in the original post.
    So do you then concede that given the evidence I have offered- you admit that raising the minimum wage seems to have no direct effect on the cost of living? I just want to make sure that if I’m continuing this discussion, you are willing to admit when you might be wrong.

  8. You are welcome to stubbornly hold onto your beliefs in the face of evidence. That is your right. I just don’t want to have a 35+ comment conversation with someone who won’t accept evidence when it is presented.
    I can provide links for my numbers:
    This link provides the Poverty Threshold for 1997 ($8183), 2007 ($10,787), and lists the increases to the minimum wage from 1997-2007 (static at $5.15), 2007 ($5.85), 2008 ($6.55), and 2009 ($7.25). I got the PT for 2014 from this site, which is $11,670.
    If it is true, as you claim, that “ When the minimum wage increases the cost of doing business increases. Eventually the employee making $10 an hour as the minimum will have the same buying power as when they earned $7.25 an hour” then it should be the case that the PT (which is a defined measure of the value of a dollar, as you seemed to concede already.) should increase more during periods where MW increases and increase at a much lower rate during periods when the MW is static.
    That is exactly what you are claiming. You are claiming that an increased wage leads to higher cost of doing business and therefor higher prices. Yet a clearly defined measure of the cost of goods (the PT) has gone up less-much less-during the seven year period that we have had three wage increases, and gone up more during any seven year period you choose between 1997 and 2007 when the minimum wage remained unchanged at $5.15.
    The facts do not bear out your assertion- the PT has behaved in a way that is precisely opposite to the way you claim it should.
    I welcome an explanation as to why you still claim something that evidence clearly contradicts- I would just prefer more than just “It seems like it ought to be so”.
    I can explain to you exactly why your assertion is false, because I know why it is. I just want you to explain how you can hold onto a belief that is clearly shown to be false. It is specious, but it is clearly false.

  9. What role did inflation play in your argument? You claim that increased wages cause inflation, but that seems factually inaccurate.
    And yes, I plan on addressing all of your arguments, but I want to avoid a Gish Gallop that allows you to avoid defending an inaccurate premise by focusing on multiple points of your argument at once instead of defending each one individually.
    When I feel we have made some headway on this first point we can address the next one. Can you admit that on this single point, out of many points, you seem to be mistaken. I’m not asking you to abandon your whole argument. I’m asking you to concede a point that I took the time to prove is not correct.

  10. Fine. I’ll accept that you now admit that raising wages is not a major factor in the cost of goods, and that other factors are at play other than just wages.
    This is progress from your previous statement that raising the minimum wage would raise the cost of living to a level that would counterbalance the increase in spending power.
    That is all I was trying to accomplish, was just to establish that increasing the minimum wage has very little effect on inflation.

    What would you like me to address next, that minimum wage will cost jobs or that increasing the minimum wage will result in 29 million minimum wage earners? How about when I explain to you that a minimum wage increase could lower your taxes by a large amount without having an impact on government revenue?

    • Its not progress. I think you understood me to be saying that increases in wages is the leading cause or most substantial cause. I wasnt making that point. The cost of the min wage does affect the costs though. When you rase the min wage, most other wages go up also. Its part of the problem.

      Id love to hear gow fewer taxpayers equals lower taxes and no impact on the amount of tax revenue.

  11. See what you did right there? You just tried to turn this conversation into an argument on multiple fronts again.
    Before we start talking about why raising the minimum wage is going to have not just a neutral, but in fact a positive effect on government revenue, and likely result in lower taxes for all Americans- I suppose your objection begs the question- will raising the minimum wage cause an increase in unemployment?
    So let’s look at that question first.

    I’ll give you two choices:
    Would you like to look at a wealth of studies that has swayed the opinion of 4 out of 5 economists that minimum wage has little to no effect on employment,
    or
    Would you prefer that I restate why you think minimum wage increases decrease available jobs and then dismantle those objections with facts?
    I can go either way with this.

  12. Just so that I know you aren’t going to try to argue the absurd, can we both agree that the 2008 financial crisis had absolutely nothing to do with the raise in minimum wage in 2008?
    I just want to be perfectly clear on this point…..

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