`Bad Side' of a Higher Wage Isn't So Bad. BOOST THE WAGE
HOW can we explain the remarkable compassion that conservatives have suddenly shown toward the working poor in response to efforts to raise the minimum wage? Or some of the statements made by supposedly thoughtful economists? Like Nori Hashimoto's contention that when minimum wages are raised by $1, businesses decrease training by $1.28 - as if businessmen, displaying their well-known eleemosynary tendencies, were giving their least skilled workers more training than was profitable to the business. Which raises the point: How much and what kind of ``training'' do businesses provide minimum-wage workers? Picture the typical such worker: an usher at a theater, a bag boy at the supermarket, a cashier at a video-rental store. Now picture the training that is done: $1.28 worth an hour, three to eight hours a day; and for six months - as envisioned by President Bush's proposal for a sub-minimum training wage. This proposal presumes far more training than would occur and is fraught with potential abuse: Minimum-wage jobs have extremely high turnover rates. Most last less than six months. So the President's ``training wage'' could easily become the wage. All new employees would be defined as trainees; after six months, if they lasted that long, they'd be declared trained, perhaps to move up the corporate ladder into management, and replaced with a new class of trainees.
Three other economists claim that an increase in the minimum wage will be offset by a reduction in benefits. Although, in general, we'd expect some decrease, they have the gall to count breaks from work as benefits of the job, which makes one wonder why they didn't also count the geographical knowledge obtained by employees in their trips to work.
Most economists agree that an increase in the minimum wage would cost some jobs, but the operative word is ``some.'' The congressional bill would increase the minimum next year by about 15 percent. The best estimates are that this would lead to a decrease in employment of minimum-wage labor by one-quarter to one-fifth of that - say about 3.5 percent - or about 90,000 workers. If the minimum wage was raised to $4.55 an hour in one jump (a 36 percent increase), employment would fall by 180,000 to 240,000. Although less than 10 percent of minimum-wage workers would be laid off, more than 90 percent would keep their jobs and be paid more.
But it's not quite that simple. One of the more important concepts in economics has to do with substitution effects. When those minimum-wage workers lose their jobs, what do employers do? Sweep the floors and clean the toilets themselves? Historically, they lay off their least productive labor and hire more-productive workers, generally adult women, at slightly higher wages: Three 25-year-old women at $5 or $6 an hour to do the work of four 17-year-olds. They also pay their more highly skilled workers slightly more.
So next year, there would be a transfer of jobs, with 90,000 fewer teens and 60,000 more adults working - all at higher wages. And most of the unemployed teens would reenroll in school, and some of them might even improve their future job prospects.
Another thing employers do is substitute capital - machinery - for labor; and this allows workers to be more productive. Unfortunately, many minimum-wage jobs can't be performed efficiently by machines - unless we devise assembly-line hamburger shaper/cookers or motorized wash rags.
Other employers won't lay off anyone; they'll simply absorb the increase and their costs will go up. That's why businesses are opposed to the increase. Especially small businesses (with large numbers of unskilled workers) operating in highly competitive product markets that discourage price increases.
Thus, the ``bad'' side of minimum wage increase isn't all that bad: For every worker or small businessman who suffers from it, there will be 15 to 30 workers who will benefit.
The US has historically paid the highest wages in the world and until the mid-1970s was highly competitive in world markets. But in the last 15 years, it has tried the competitive method of third-world countries: low wages, small amounts of capital (relative to countries like Japan), and relatively stagnant technology. This method hasn't worked very well.