The Price of Compassion, Part II

One of the ways the Washington Post works an issue is to frame a topic in terms of individual lives. A good example is the story in the Sunday September 13th Business section entitled “The Power of One More Dollar.”

The story amounts to a campaign piece on behalf of the $15/hr. minimum wage told through the life of a Guatamalan couple living in a basement apartment in Washington, D.C. The woman is trying to save $7,000 in order to send for her thirteen year old daughter so she can get an education in the U.S.––a noble ambition for sure. Laying out the families economics, the reporter––Lydia DePillis––explains how each dollar more per hour that Dalia Catalan earns means an extra $160/month that can be saved toward that end.

The Catalan family example, however, punctures a hole in one of the cornerstone agruments on behalf of the $15/hr. minimum––the notion that the current minimum, which in D.C. is $10.50/hour, is not enough to support a family because it shows that the typical minimum wage earner does not have to support her family on her or his salary alone. In the Catalan’s case, there are two wage earners plus they share the cost of their apartment with a second couple.

But the huge missing piece of information DePillis left out of this article is whether the Catalan’s are in the U.S legally or not. Since that question is never addressed, one must assume they are here illegally and their two-year-old son is their “anchor baby”––the means by which they hope to gain legal standing to remain in the U.S.
The Post’s story supports my contention that the $15/hour minimum will have a negative impact on economic opportunity for low income American citizens. The author interviews one employer who states that higher minimum wages hinder his ability “to take on the really hard to hire.” In other words, the higher the minimum wage, the harder it will be those who need jobs the most, primarily young minority men, to find them.

One person quoted in the story blames employers for cutting hours in the face of higher minimums. That attitude speaks to my assertion that most people, including most journalists, have little understanding of small business economics. They assume all business owners are rich and that they could increase wages if they weren’t so greedy. That’s a convenient ideological cubbyhole in which to place the blame, but let’s look at the facts.

First, we’re not talking about $1 more per hour to reach $15/hour, but in D.C. $4.50 more per hour or $180 more per week in gross salary. Add in taxes and mandatory benefits, including Obamacare, and we’re looking at $15,000 or more per employee annually over their current pay. That kind of increased cost for just a handful of employees would wipe out the entire profit for many business owners, which is why many will have to lay off empoyees or cut their hours.

No one should blame the Catalans for the choices they’ve made. Dalia says they’re better off here than they were at home. Plus, are unemployed American citizens going to clean hotelrooms like she does? But as a society we’re still making it too attractive for people to come here illegally, disadvantaging citizens as well as those who are applying to come here through the legal immigration process.

How long can we do what feels good without examining the real costs? Is it fair to help those who are getting the raises at the expense of others––namely, those who will be laid off or have their hours reduced and those who can’t find a job?

We also should examine the motives of those who advocate the $15/hour minimum. Who benefits the most? Certainly the politicians who can pretend they’ve done something good without telling the public the full story. Certainly union bosses who can use the $15/hour to leverage raises for their members. Maybe DePillis will tell a union boss’s story next week. How do their family budgets work out on their union salaries? And what about the religious Left––they too benefit because advocating a minimum wage increase is a cheap way to feel good about oneself since it doesn’t require addressing the more difficult problems facing our society.

The high cost of the $15/hour minimum wage

Leftists led by America’s labor unions are winning support in major cities from Seattle to New York to raise the minimum wage to $15/hour. Their rationale is the living wage theory, claiming people can’t live on less and therefore government needs to step in. Compassion is nice except when it harms the targeted recipients, which is the case here, but we shouldn’t be surprised that the Left and Labor Unions are doing damage to the very people they claim to care about. This is not the first time they have betrayed the “working class.”

People hold minimum wage jobs for a reason––some work part-time while going to school or to supplement a primary job; others hold a minimum wage job while looking for something better, while still others are entry level workers gaining experience with the promise of moving up in a company, and some simply fail to qualify for higher paying jobs. The $15/hour movement hurts all of the above.

Evidence is starting to roll in on the impact of the minimum wage raises passed in Seattle, San Francisco, and L.A. (See “A Post-Labor Day, Minimum Wage Hangover,” by Andy Puzder, WSJ, 9/7/2015.) While a few get higher pay, thousands are losing their jobs as the higher wages have lead to businesses closings, employers investing in labor saving technology or making do with fewer workers.

The sad part of the job loss caused by the $15/hour movement is that it has the greatest negative impact on young people and minority workers. With the labor participation rate already in the low 60% range and 6.5 million Americans working part-time because they can’t find fulltime work, a $15/hour minimum will make it that much harder for young minority job applicants to find work.

Leftists are prone to attribute job loss to business owners, but that’s like blaming car manufacturers for charging customers the cost of government imposed fuel standards. Many employers facing a $15/hour minimum will have no choice but to lay people off or go out of business.

Unfortunately, the average person has little understanding about how businesses work. They have been led to believe business owners can afford the raises, but are greedy. The truth is just the opposite.

Consider the restaurant industry. As anyone who watches the popular Food Network show Restaurant Impossible can tell you, people open restaurants without sufficient management experience. They’ve been taught by the media (movies and sit-coms are the worst offenders) all you have to do is open your doors and the profits will roll in. The restaurant industry is highly competitive, which means anyone saddled with high labor costs is automatically in trouble.

I blame liberalism (or progressivism, if you prefer) for the public’s lack of knowledge about small business economics. Typical is the Labor Day column that appeared in the Albany Times Union, written by a retired SUNY professor who undoubtedly never had to meet a payroll, which described today’s business owners as Robber Barons. The reality is rapid, continuous changes in technology and the world economy have made it extremely difficult for large corporations to meet their goals. Top executives often pay the price, as few last more than a few years. Nor is it much easier to run a restaurant, print shop, laundry, construction company, or any other of the hundreds of businesses that employ fewer than 50 people.

A small business with 50 employees would have an annual payroll in excess of two million dollars if the lowest paid workers earned $15/hour. Labor costs for small businesses can range from one third to two-thirds of expenses, and when business is slow, many an owner has to forego pay and/or take out a home loan to tide their business over.

Labor costs depend on each worker producing value in excess of his or her wage and, if labor costs increase, it’s not always possible to raise prices. To do so, may cost customers, which is the beginning of a death spiral for that business.

By definition, minimum wage jobs add minimum value to the bottom line. Although the workers may have skills they aren’t using, the job may not require those skills; hence the employer can only pay what workers brings in, not what they potentially could produce in another job or what they need at home.

Historically, labor unions take no responsibility for the consequences of their demands. The car, chemical, and steel unions nearly destroyed their industries by pushing up costs, while undercutting innovation and quality. Remember Ralph Nadar’s expose of the Chevy Corvair? The UAW took no responsibility for that death trap, but they were as responsible as GM management.

For years, unions won concessions from managers who should have acted more like robber barons, but instead gave in to union demands in hope that future revenues would cover future costs. That resulted in deteriorating product quality and opened the door to foreign competition from which we never recovered.

There is only one solution to the problems of Americans who need higher wages to meet today’s living costs––an expanding economy that produces more higher paying jobs. The steps that need to be taken to achieve that are outside the scope of this essay, but it has to be noted that there are always plenty of job openings for skilled people. Yet, those jobs require candidates possess specific credentials, which puts the burden on young people still in school to study subjects that can lead to employment and on the unemployed to take advantage of job training programs. Some of today’s minimum wage workers are where they are as a result of personal life choices, such as drug abuse, dropping out of school, and other self-inflicted wounds.

Compassion is not the sole province of Union leaders and Leftists, nor is it compassionate to advocate policies that harm those you claim to support. What sounds good needs to be subjected to rationale empirical-based analysis. The $15 minimum wage is simply bad policy because it will cost people jobs, and force businesses to close or to fire current employees. It should be vigorously opposed.