Tuesday, April 1, 2014

Sages About Wages

This week's White House "Weekly Address" continues to drive home the theme of economic inequality.

Vice-President Joe Biden gave the the address, entitled "Raise the Minimum Wage: Its the Right Thing To Do For Hardworking Americans." The address appears to be in support of the pending  Fair Minimum Wage Act of 2014, which would raise the minimum wage in several increments to $10.10 an hour.

Well, should we? I do not know. My gut reaction is "Sure, why not." The minimum wage certainly has not kept up with inflation. Our government's inflationary fiscal policies have certainly eroded the impact of a minimum wage. Maybe we need more government intervention to ameliorate the impact of early government intervention !?!  Of course, the minimum wage has been supplemented by expansion of food stamps, school lunch programs, etc.

Should we raise it to $10.10? Not so sure. It seems a little high for unskilled workers.

At any rate, here is Joe Biden with his pitch:

As is the case in many claims by politicians left and right, the call for increasing the minimum wage is more important politically than economically.

That is why the Vice-President's message is filled with as much sloganeering as economic data.

Biden notes the current federal minimum wage of $7.25 an hour and makes the obvious observation that "there is no reason why an American working forty hours a week has to live in poverty." Moreover, he continues, "and you all know [duh] that's incredibly hard for an individual to live on, let alone raise a family on." 

A cursory look at a report on the minimum wage by the Bureau of Labor Statistics reveals the emptiness of Biden's rhetoric.

Hardly anyone is attempting to raise a family on a forty hour a week job at minimum wage.

--Only 2% of minimum wage workers are full time.

--Only 2% of minimum wage workers are married.

--Only 3% of minimum wage workers are over twenty five years of age.

Minimum wage jobs are largely for young, unskilled people working part time; there is a difference between a job and a career.

And, of course, American notions of what constitutes poverty are almost meaningless both historically and globally. The average American is richer than 98% of people who have ever lived on the face of the earth. Biden inadvertently acknowledges this fact when he says that one of the benefits of a minimum wage increase  is that it will contribute to the economy by allowing the less affluent to "put gas in their automobile."

Biden contributes to the "war on women" narrative by claiming that "the low minimum wage is one reason why women in America make only 77 cents on a dollar that a man makes." 

Because the statistical category "Women" is so large, it is nearly impossible to derive any meaningful conclusions by its use. There are never married women, married women, divorced women, women with children, women without children, women without even a high school education, and women with advanced degrees. And, most importantly, there are women who work part time and women who work full time.  They differ in the world of economic analysis. They can be grouped together only in the world of political rhetoric. According to the Bureau of Labor Statistics, 6% of women earned wages at or below minimum wage compared to 4% of men. Yawn.

Biden credits companies like Costco and the Gap for paying above minimum wage. In fact, most companies do so. The majority of workers earning at or below minimum wage are engaged in food service industries, where tips constitute a significant portion of overall income.

Biden credits state governors for increasing the minimum wage at the state level. In fact, according to the Department of Labor, nearly half the states have minimum wage requirements higher than the federal government. So the impact of raising the federal minimum wage might depend upon what the states have implemented already.

Finally, Biden claims that three out of four Americans support raising the minimum wage. That might be so. It depends on how the question is phrased. All Americans favor anything beneficial to themselves or others when they do not have to consider the trade offs.

Investor Peter Schiff went "incognito" to explore the willingness of Americans to support higher wages when confronted WITH the trade offs. The trade off for higher wages is, as one might expect, higher prices.  He posted the clip below a few months back when several unions came our for a $15 an hour minimum wage.  Of course, we have no idea about Schiff's selectivity in which interviews he decided to include in his edit. For what its worth:

When all is said and done, I guess the strongest reason for increasing the minimum wage is that it will have a negligible impact on almost everyone--including those people it is designed to benefit.

The only real gains will be realized by the politicians who vote for it.


CW said...

What business does the federal gov’t have decreeing that there must be a minimum wage? Where is that in the Constitution?

There should be no minimum wage, IMO, and it makes me angry when I hear Biden suggest that we reward people who manage their lives poorly by paying them more rather than letting the discomfort of poverty be the natural incentive to aspire to something better. The lefties won’t be happy until we’re all mindless, dependent sheep.

RightDetour said...

Neither do the lefties consider the fact that some of their policies serve to suppress wage rates in the free market,for example, immigration. And of course government subsidies and price supports on certain commodities reduce the spending power of already depressed wages.