“Labor is the superior of capital and deserves much the higher consideration.” Abraham Lincoln
There is no substitute for what we learn in our early jobs. In 1968, minimum wage was set by the government at $1.60 per hour. The $15 an hour minimum wage proponent today claims that $22 or even $24 an hour is necessary just to remain even with inflation since then. But is that true? I did a quick projection from the $1.60 an hour in 1968, which is generally held to the be the time of the highest wage relative to inflation and most advantageous to the worker. A dollar’s worth of goods in 1968 would cost what today? The Consumer Price Index calculates that $100 in 1968 requires $771.30 in 2021 to purchase an equivalent amount of necessary goods[i]. Using that ratio would raise the minimum wage to $12.34 today. Not $24 or $22 or even $15, but $12.34. But it is $12.34, not the current $7.25, to which it was raised in 2009, a dozen years ago. That is a long time.
Without debating the free labor market and what role government should play in setting wages or prices, because that is far beyond the scope of this modest blog post, if we stipulate for discussion that there is some role government should play putting their thumb on the scales to help the working person earn fair wages, then clearly some adjustment is needed in the minimum hourly wage to which workers should be entitled for their labor.
What would the impact be of raising the minimum wage to $15? Most large companies exceed that already as a hiring wage. The labor market before the COVID recession hit was close to full employment, and to hire anyone for skilled or even semi-skilled jobs required that level of pay, at least in New England. Now things are different, and there are ten million people who were employed then that are not employed now. Market forces have pushed the full employment starter wage down a bit, but it will come back. Although perhaps not for the type of starter jobs most people rely on to enter the work force when they are young.
Small companies, the incubator for most new jobs, cannot afford to hire untrained, inexperienced workers with no known work history at $15 an hour. The high turnover and the number of misfires trying to fill those unskilled positions mitigate against starting people off at a high wage and still make the profits necessary to remain a small business and grow. Small business owners have told me they cannot afford to and will not hire inexperienced labor with no training and with a possibly deficient work ethic at that pay rate. With the cost and unproductivity of new hires with few skills, such a starting rate would put them out of business.
“Work is about more than making a living as vital as that is. It’s fundamental to human dignity, to our sense of self-worth as useful, independent, free people.” President Bill Clinton
The Congressional Budget Office did a detailed evaluation of the economic impact of a mandated $15 minimum wage. What would that look like when implemented? The estimate from the CBO calculated that raising the minimum wage to $15 would add money to the total national payroll, but a lot of that would be offset by the loss of income to the 1.4 million people whose jobs would be lost. Rather than go into all the detail, the CBO analysis is available, and I recommend you review the whole document[ii]. It would add to the Federal budget deficit by $54 billion over the ten-year period projected in the study. Health care costs would increase. Child-care costs would rise mostly hurting the lower income brackets with two worker families who rely on these services. Childcare costs project to grow to between 30% and 50% of the income of the families needing it.
My greatest concern is that many of the job losses would occur in starter jobs where young people learn to survive and prosper in the workplace. Even the raise in 2009 to $7.25 prompted employers concerned about keeping their labor costs under control to turn to automation: from innovation in operating system software that cut down data entry jobs to kiosks in restaurants, especially fast-food restaurants, to replace counter workers. The more repetitive types of lower skill jobs in shops and factories – like making fence panels — would be quick casualties. A higher minimum wage can be offset for businesses striving to remain profitable in a competitive environment (when is it not a competitive environment?) by eliminating positions and replacing them with capital investment in robotics and software, one-time costs that are amortized over time and result in overall cost reductions.
This is what the CBO predicts will happen – the loss of 1.4 million jobs – and it will affect disproportionately the young part timer trying to get started and the educationally disadvantaged breaking into the labor market. Young workers need to improve their lives with the dignity and structure of work necessary to escape the frustration, discouragement and boredom that leads to no good place. Those who most need an entry into the workforce must be afforded the opportunity to learn the physical skills and the “life skills” so necessary throughout our lives. A government decree does not guarantee them that nor can it justify that early formational work is worth $15 an hour to an employer. Perhaps, as my son suggested, an exception could be made for starter jobs like intern positions for students. That is an idea worth some discussion.
A shortage of starter jobs would rob the inexperienced of the chance to make some mistakes, to build their confidence and to experience the satisfaction of taking pride in their work – to build productive habits for a lifetime. Can we afford to forfeit this opportunity only available for a few short years for so many, when they are young and have so many miles to go before they sleep?
“It is not wealth one asks for, but just enough to preserve one’s dignity, to work unhampered, to be generous, frank and independent.” W. Somerset Maugham
[i] Consumer Price Index calculator.
[ii] Congressional Budget Office study on raising the minimum wage to $15: