I keep hearing chatter about raising the minimum wage from $9.65 per hour to $15.00 per hour. That’s greater than a 55% increase!
Now, I do believe an increase in minimum wage is warranted, but maybe keeping pace with the rate of inflation makes a little more sense. Maybe a 2.5% to 4% increase in the minimum wage each year would be more sensible.
I remember more than 25 years ago when I was making $3.25 per hour and gas cost between 81 cents and 97 cents per gallon. I’m pretty sure we will never see those prices at the pump ever again. And, I’m not upset about the fact that gas prices are what they are. It’s all relative. As everyone makes more money, the cost of goods will increase relative to the increase in wages. Sure, there are other variables involved in that equation, but it’s to be expected. Payroll is usually the largest expense of any company, so increased wages have a tremendous impact on consumer costs.
Artificial inflation
If we increase wages by 55%, then we had better be prepared to accept all of the increased expenses that come along with those wages.
The person who drives the semi-truck hauling the fuel to the gas stations will need to make 55% more in wages, and the person working behind the counter will need to make 55% more in wages. Fuel, food, car maintenance, utilities, insurance, health care — everything will cost more because employers will need to pass those costs on to the consumer.
So, if someone has their wage increase from $9.65 per hour to $15.00 per hour, then a person currently making $15.00 per hour should be making 55% more — which is $23.25 per hour.
As everyone clicks their heals when they see larger paychecks deposited in their bank accounts, they need to keep in mind that everything they spend money on will increase in conjunction with their compensation.
The free market
We are at a pivotal point with the symbiotic relationship between our employment market and our economy. At this time, we have a perfect representation of how a free market dictates wages beyond any government requirements.
Many employers are struggling to hire and keep good people. There’s nobody sitting on the bench waiting for a job. Unemployment was at 2.3% in Fillmore County, Minn., as of May 2018. That’s a good sign for the economy, but bad news for employers. The most employable people are already working for somebody else, and employers have to offer prospects a lot more than what they are currently receiving in wages or benefits in order to steal them away from another employer. And, the reality is that it will be this way for another 10 to 15 years as the baby boomers settle into their new role as the heir apparent to controlling more than 75% of the assets of the nation.
With more jobs than there are people to fill them, wages will increase on their own. Employers will need to increase wages of existing staff so they don’t lose them, and they will have to offer higher pay to new hires compared to any other time in the history of their business. It’s a reality small businesses are facing everywhere, and especially here. I know, because I hear it all the time as I visit with our business community.
What about our seniors?
We have 71 million baby boomers retiring at a record pace over the next 10 to 15 years, and many of them will be living on a fixed income. Well, shouldn’t they receive a 55% increase in compensation in their social security payments to compensate for the inflation that will impact any products and services they need to purchase? If we don’t consider the impact on our seniors, they will suffer.
Government decisions
One thing that continuously makes me cringe with our government is the inability to forecast the consequences of decisions. Are you prepared to contend with the price inflation in products and services that will inevitably occur as a result of a 55% increase in minimum wage? Unfortunately, we cannot have our cake and eat it too.
Thomas E.H. says
Question for the author. You make is sound as though the increase to $15 will take place in an instant. What is/are the proposed timelines for the increase? 1 year? 4 years? Rate of increase is indeed important, and I just want to ask for clarification on this.
Also, consider the trends. Are fewer and fewer people obtaining more and more of the wealth in the world over time? Is that a true and real trend? If so, what can we expect laws to reflect if many laws are written by large corporations, only to be proposed and passed by the elected officials who get a lot of campaign support from the very same large companies?
Aaron Bishop says
According to the StarTribune, Minneapolis (and likely the state would do something similar) plans on implementing their wage policy over several years to mitigate some of the negative impacts from raising the wage.
http://www.startribune.com/judge-upholds-minneapolis-15-minimum-wage-ordinance/475425183/
I’m no economist, but I do find this subject fascinating. As mentioned elsewhere here, the minimum wage has gone up a bit, but the cost of living has gone up faster. Jason Sethre, what do you think about gentrification? Because I can see families becoming unable to support themselves if prices go up faster than wages. It would select only certain, more wealthy people to places others have called home for so long.
Cheers!
Jason Sethre says
Aaron,
Gentrification is currently underway in larger cities. I would say even Rochester, Minn., not considered a large city by some standards, has experienced gentrification. Look at both ends of West and East Center Street. Back in the late 1980s and 1990s, those were rough neighborhoods. Now, they have been bought up by people with a plan for the beautification and betterment of the city of Rochester, and it has become a perfect marriage with proximity to the downtown Mayo Clinic campus. So, regardless of what happens with minimum wage, gentrification will take place in larger cities.
But, there is a tremendous difference between how a dramatic increase in minimum wage will impact rural areas like Fillmore County compared to urban settings like Minneapolis, St. Paul, or even Rochester, for that matter.
As I speak with local auto repair shop owners, restaurant owners, grocery store owners, and a wide range of other local business owners, they are concerned about the impact an increase on minimum wage to $15/hour will have on their business. And, here’s why. If they have to increase wages beyond what their current business model supports, then they will have to increase their prices to customers. They cannot buy inventory with volume discounted pricing like big operations in Rochester, so they are concerned about increasing their prices to consumers (to pass along the increased expense) and eventually losing customers to similar businesses who can sell products and services at a lower price in the big city. Essentially, they are rightfully concerned about their small town full of locally-owned businesses becoming a ghost town.
I feel that wages should increase to keep up with inflation. There’s no doubt. But, that should be happening naturally in every business that wants to retain good employees. The USPS used to have to wait for the Congressional Postal Regulation Committee to approve an increase in postal rates, and that’s why postage rates were stagnant for too many years. I always felt they should increase postage according to the rate of inflation. The USPS could not spend more money on labor, fuel, and all other increased expenses if they kept their rates the same year after year. It’s the same situation with the cost of inflation compared to minimum wage.
If there is a need for a minimum wage, and that is used as a benchmark for all other wages above and beyond, then treat it like the Ronco Rotisserie — “Set it and forget it.” Establish law that increases minimum wage with the rate of inflation every year. But, don’t wait until there’s a significant spread of $9.65/hour and a proposed $15.00/hour. That’s too late.
But, I still question whether we even need a minimum wage anymore. We are losing baby boomers from the workforce, which is the largest working population (71 million) ever in American history. Fortunately, many boomers are staying in the workforce at a part-time status, and we need their work ethic, maturity, wisdom, and experience to keep America trucking along. Over the next 10 to 15 years, we are going to experience a rude awakening. As these boomers fully retire, our employment situation is going to worsen. If there are businesses struggling to find help today, it’s only going to get worse.
And, as a matter of supply and demand, if we have a shortage of employees, it’s an employee’s market. Kind of like what we experienced over the past 10 years with the real estate market. In 2009, it was a buyer’s market. In 2018, it’s a seller’s market. Today, it’s an employee’s market. In 2009, it was an employer’s market, due to the financial crisis and all of the layoffs. I believe it is going to be an employee’s market for decades. People are going to make more money because employers are going to have to pay more to steal them from another employer. And, I believe employers will be relaxing requirements for college degrees, and become more willing to provide on-the-job training.
Hence, minimum wage will be null and void in the equation.
John says
I made $25 per hour 25 years ago. Gas was .89 a gallon, a pound of hamburger was .89, my health insurance was $50 a month through my employer (100% coverage) and I got four weeks of paid vacation and 5 sick days a year. I was able to raise a family on my income alone.I guess I should be making three times that much now at least. We”ll never see times like those again.
The minimum wage in 1968 was $1.80 per hour. Fifty years later based on inflation it should be $11.64 according to an inflation calculator. I don’t think it is that accurate though, since health care costs about 100 times more now.
Kim Wentworth says
Never have understood reason for a minimum wage???
George says
Because corporations would pay you nothing if they could get away with it?
Jason Sethre says
So, George, there is an assumption that everyone works for a corporation that doesn’t care about their employees?
See U.S. small business figures: https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.sba.gov/sites/default/files/advocacy/United_States.pdf&ved=2ahUKEwim8IeJ5uLcAhUwgK0KHWb1A4kQFjAMegQICRAB&usg=AOvVaw0e-7xg3MMSleimnRPTyj8N
The majority of employees in the U.S. work for small family-owned businesses (not corporations) who do care about their employees. Maybe you have worked for corporations and have a different perspective. I have worked for some great small family-owned businesses throughout my life, and I have also worked for corporations.
The reality is that whether the employer is family-owned or a corporation, the employer who provides what employees want is the one who retains and recruits the best talent in the market. That includes compensation, benefits, culture, flexibity, training, recognition, and truly caring about the well-being of employees beyond the workplace. At least, that’s my philosophy I was raised on throughout my career.
So, getting back to the minimum wage issue, if a corporation or small family-owned business pays as little as possible, they will attract and retain less talent. All the best employees will keep looking for something better because they don’t feel valued. The free market dictates who wins the talent. And, employers who have the best talent on their team tend to be positioned with a competitive advantage.
George says
I know. Those pesky facts
http://www.startribune.com/tax-cuts-check-profits-check-high-stock-prices-check-wage-increases-well-the-workers-must-make-do/490602001/
Thomas E.H. says
Jason,
//So, George, there is an assumption that everyone works for a corporation that doesn’t care about their employees?//
How do you measure care for employees? Pensions? Wages? Benefits? Safe working environment? Daycare? Paid family leave?
When jobs are so sparse in a lower populated region, will wages go up to encourage others? Or will wages stay low because the company knows there aren’t many other options for job seekers? When companies like Amazon and Walmart pay their employees so little that the employees must enroll in federal aid for financial assistance, is that just the “free=market” doing as it should?
What is your take on the “free-market” and how they go hand in hand with this current administration’s actions to impose tariffs on products from other nations? Is this the free-market?
//The reality is that whether the employer is family-owned or a corporation, the employer who provides what employees want is the one who retains and recruits the best talent in the market.//
Of course they are. But when the job doesn’t require much skill and people still need to eat, what then?