Thursday, August 25 , 2016, 4:51 am | Fair with Haze 61º

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Harris Sherline: Does Raising the Minimum Wage Really Help Workers?

Having given 699 speeches since he was elected president, Barack Obama is probably America’s most loquacious president. Everyone knows that he’s a great talker, often nonstop. Give him a microphone and a couple of teleprompters, and he can talk for hours. His State of the Union address on Tuesday to a joint session of Congress was a good case in point.

As usual, his bromide for the economy was based on more government spending and higher taxes, which included a proposal to raise the federal minimum wage to $9 an hour from $7.25.

Once again, Obama displayed his ignorance of economic and business issues.

No doubt, he thought his recommendation would help lift all boats when he said, “This single step would raise the incomes of millions of working families.”

However, PoliticalOutcast.com noted: “Raising the minimum wage will make businesses do one of three things: (1) reduce the number of hours that the store is open in order to save money; (2) fire some employees in order to save money; (3) go out of business altogether for failing to do either (1) or (2) ... How can incomes go up when your business reduces store hours? How can incomes go up if your workplace goes out of business? In what land of the insane does Obama come from that he thinks people’s incomes would go up with a minimum wage hike?”

Fox & Hounds editor Joel Fox observed, “One Washington think tank, the Employment Policies Institute, claims that a number of studies show increasing the minimum wage hurts job growth. For small businesses, the issue is practical in these times of rough economic seas and additional government mandates — how much can the business bear without killing jobs?”

Having never worked in business, it’s clear that Obama does not understand the most rudimentary economic principles. It’s not necessary to be a Nobel Prize-winning economist like Milton Friedman to recognize the influence of the minimum wage on business. Friedman noted, “The minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills.”

David Rosenbaum, writing in CFO.com (Feb. 13), noted: “The impact of minimum wage increases on small business — and the economy in general — has been much debated ever since a federal minimum wage was first established in 1938, even though the federal minimum wage only establishes a floor for individual states ...18 states and the District of Columbia currently have a state minimum wage higher than the $7.25 federal rate.”

Mark Wilson, a former deputy secretary of the Labor Department, has argued that raising the minimum wage “hurts the low-wage earners by leading employers to cut back on fringe benefits, while also encouraging to automate those workers out of their jobs.”

In addition, a National Federation of Independent Business spokeswoman said, “If the president thinks that a minimum-wage increase will be paid for by wealthy, big businesses that can afford it, he’s wrong. The cost of a minimum-wage increase would fall on small-business owners.”

In 2006, then-Chicago Mayor Richard Daley vetoed a proposed ordinance that would have required large retailers to pay their workers a so-called “living wage.” The minimum wage in Illinois at the time was $6.50 an hour and the federal minimum was $5.15. Daley said it would cost the city jobs and hurt people who need those jobs the most.

Michael Saltsman, research director with the Employment Policies Institute, further noted that many minimum-wage workers are teens living in middle- or upper-income households and that 60 percent of people living below the poverty line don’t work and would not benefit from a higher wage. A full-time worker earning minimum wage would gross $15,080 a year, roughly equal to the poverty level for a family of two.

However, minimum-wage workers are usually not head of a household and are not required to support other members of their family. They are generally teenagers who are working in entry-level jobs to gain experience, learn how to work for an employer and move on or up.

Once again, feel-good politics triumphs over logic and facts, spending other people’s money by increasing the cost of doing business for everyone and attempting to create a solution to a problem that really can’t be solved by legislation.

Finally, it’s important to note that all other wages in the organization are based on the minimum wage. By increasing the floor for wage rates, the compensation for every other position in those firms that employ people at the minimum wage will also have to be increased, in order to maintain appropriate differences between the various positions in the organization.

Here are some questions for those who support the continued increases in the minimum wage:

Does raising the minimum wage for a few low-wage workers actually make it possible for them to live? Raising an employee’s compensation, say by $5 an hour, would increase their gross pay about $200 a week, or $866 a month. If you add that to the approximately $1,733 a month they may already be earning (at say $10 per hour), their total gross will be about $2,600 a month. Does that make it possible for them to buy a home or live in the affluent communities where many of them are employed?

If a minimum wage can be created by fiat, why not make it $20 an hour, or even $40 or $50? Why not take it to the max and legislate the rate of pay for all jobs? How about $100 an hour for everyone? Sounds good to me.

— Harris Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital. Click here to read previous columns. The opinions expressed are his own.

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