Address safety net over wages
Currently, there is much discussion around raising the minimum wage. Proponents argue that an increase is necessary to provide a “living wage.”
In my view, this proposition conflates two different things: what people get paid for work and the level of the social safety net. To be clear, I do believe that we are our brother’s keeper, and a social safety net is necessary.
I will argue, however, that raising the minimum wage represents a very inefficient way to address the issue and has unintended consequences that are quite negative for our society.
It is important to recognize that wage income makes up only a part of the social safety net.
A variety of federal and state government programs are intended to supplement lower wage income earners, such as food stamps, aid to dependent children and a host of others.
As a result, it is inaccurate to suggest that a person’s wage income is what they must live on. It is not.
Let’s conduct a thought experiment on the effects of the minimum wage. Pretend to raise it to a level that would provide a “living wage.”
A full-time employee (2,000 hours) could be paid $20 per hour and receive an annual income of $40,000. Most would agree that income would be a “living wage.”
What are the consequences?
First, the cost of every good and service that contains some minimum wage employee input will increase. Since a business passes all of its costs to the consumer, we can expect to pay more for them.
So the wage increase is not “free,” but rather paid for by all who buy goods and services that include minimum wage labor. Second, every business would now have a large incentive to “economize” on minimum wage employees by automating their processes and outsourcing (to a lower wage country) some of those tasks.
Minimum wage employment could grow less rapidly and even fall. This job loss would be concentrated in the unskilled – just the people minimum wage is intended to help.
Third, the entire wage structure would shift upward as skilled labor would expect to be paid more, sometimes much more, than a minimum wage employee. These higher wages would also be passed along to the consumer of the goods and services that contain them; further raising the cost of living for just about everyone.
Fourth, a minimum wage eliminates the cost imposed on an employer for engaging in discrimination. Potential employees cannot compete with respect to the price of their labor.
When there is no cost to discrimination, logic tells us to expect more of it. From this thought experiment, the reader can see a number of unintended consequences that are negative to members of society.
I think those who advocate a higher minimum wage are well-intended but confuse the social safety net and wages paid for work.
A minimum wage imposes costs on society by destroying jobs, increasing unemployment among those being “helped,” raising the prices of virtually all goods and services and potentially increasing discrimination in employment.
Instead, we should focus our efforts on developing an adequate social safety net, targeted to those who most need it, together with strong incentives for people to work.
Gable resides in Altoona. He is an occasional contributor to the Mirror’s Opinion page.