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Minimum Wage Deniers Still Fighting Reality

Another seventeen states either increased their minimum wage at the start of the year or are scheduled to do so during 2016. That's in addition to 22 states last year, with an overlap of 14 that are ratcheting up their rates two years in a row.

With the American public strongly in favor of giving America a raise, as Obama has put it, one would think Republican candidates would be declaring their support for bigger paychecks to gain votes, yet they and conservative editorial pages staunchly argue to keep the minimum where it is at $7.25 an hour, unchanged from 2009 and with no concern that inflation has already taken $.75 out of its buying power in the years since.

Marco Rubio called raising the minimum wage "a disaster". Jeb Bush says leave it where it is. Ben Carson at first was in favor of raising it an unspecified amount, then joined the pack saying it would be misguided to raise the wage. "Every time we raise the minimum wage, the number of jobless people increases", which ignores the other half of the equation, the benefits to those whose higher paying jobs continued. Donald Trump has said that, "we're not going to be able to compete against the world. I hate to say it, but we have to leave it the way it is" and even declared that "our wages are too high."

In the other camp, Bernie Sanders unsurprisingly wants $15 an hour, but spread on five years. Hillary Clinton more conservatively thinks $12 an hour on a timetable is sufficient.

one-sided doesn't fit all

For the arguments why wages should be held fast for the sake of businesses, look to the opinion pages of The Wall Street Journal, which continues to fight for the status quo.

There's David Neumark, an economics professor at the University of California at Irvine, who, judging from his unmodified stance from our reporting on him before, is single-minded about proving that a rise in the minimum wage costs jobs.

In this op-ed he seems exultant that a study has come along that
says the "minimum wage reduces job growth over a period of several years", which is not the same as job loss, and another study that "found a 1% or 2% reduction for teenage or very low-skill employment" for each 10% wage increase. There is no mention that, per force, the 98% or more have seen their paychecks rise by 10%. Accepting only research that backs his position, he then disparages studies by other reputable economists who have found job loss to be negligible, calling a widely cited and pioneering study by two Princeton economists "flawed" and condescending that another study by collaborating economists from the universities of Massachusetts-Amherst, North Carolina at Chapel Hill, and California at Berkeley has "serious problems with the research design and control groups". Sharp elbows indeed.

Neumark is also in conflict with 600 economists, seven Nobel winners among them, who wrote a letter to President Obama and congressional leaders saying, "Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth" and that evidence showed that past increases in the minimum wage resulted in job loss ranging from minimal to none.

Then there is Andy Puzder, who seems to have open access to the Journal's op-ed page where he is welcomed to present self-serving arguments against any minimum wage increase. He is the CEO of CKE Restaurants (Hardee's, Carl's Jr.). We count four submissions in six months. In one he calculates that the aggregate profits of all retail, restaurant, pharmacy and supermarket companies in the Fortune 500, divided by their headcount, yields about $6,300 in profit per employee. He then figures that an increase in the minimum wage to only $9 an hour would cut that profit to under $4,000; to under $2,000 if the increase were to Obama's proposed $10.10 an hour; and to a loss if Clintons $12 an hour were enacted.

But if an industry can only operate at a profit by paying its workers today's minimum wage — a Dickensian $15,000 a year for a 40-hour work week (no vacation, no sick days) — then it should be clear that it is a parasitic business model. It is subsidized by we taxpayers because its workers must turn to government social programs — food stamps, housing assistance, Medicaid, refund of taxes — to fill the gap between their poverty level wage and life's necessities. Yes, but we benefit from low prices, goes one argument. But why should our wallets be fattened by low prices made possible by exploitive wages paid to other Americans? It can't be otherwise for Mr. Puzder it seems, who oddly concludes with, "With low inflation and the economy growing at an annual average of about 2.2%, dramatic price increases are unrealistic", as if such low inflation is depressing the economy and as if more disposable income in the hands of low-income people, who will spend it all on goods and services, would not boost the economy.

Another argument says that a higher minimum would price out of the market the teenagers who are the typical minimum wage earners. But this is a fallacy. Only 33% of minimum earners are less than 25 years old, much less teens. Another 30% are 25 to 39; the next 21% are 40 to 54, and 15% are 55 and older.

When Wal-Mart announced raising its base wage first to $9 an hour and then to $10, it predicted a 6%-to-12% decline in earnings per share, 75% of which it attributed to the payroll increases. When he later saw Wal-Mart announce it would close 150 U.S. stores, that was conclusive proof for Mr. Puzder in another op-ed piece that minimum wage increases result in job losses. "When a store closes, the minimum wage for your lost job is zero", he writes. "Activists should have seen it coming. Unlike the government, Wal-Mart can’t survive if it isn’t profitable".

Well, no, but wasn't that only a 6%-to-12% profit decline he reported earlier and not bankruptcy? And if it is so stressed how can Wal-Mart manage the $20 billion stock buyback that it intends, money enough to pay all of its 1.4 million U.S. employees more than an extra $14,000 each. Puzder writes:

The lesson is that America’s largest private employer — known for its ability to control costs and operate efficiently — lost profit because the company couldn’t offset a wage increase to $9 an hour by increasing prices, automating tasks or scheduling employees more efficiently.

As said, that only demonstrates that Wal-Mart's is a business model that doesn't work if it pays any more than subsistence wages. And the company says it is closing those stores because they are "underperforming" with no mention of wages. And all are the company's Express offshoot — small format stores that Wal-Mart has found generate too low sales per square foot. But the Journal editors allow Puzder to blame it all on wage increases. And he ignores that Wal-Mart says it hopes those increases will stem the defections of the 500,000 dissatisfied employees it loses every year and that the company will recoup what it spends to hire and train new employees.

What's our point, if you've stayed with us this far? It's to show that the Journal is not to be trusted on this particular subject.

paradox

In place of the minimum wage, some in the conservative camp — Marco Rubio most notably, as part of his tax reform plan — want to replace social programs with what amounts to an expanded earned income tax credit (EITC) from the federal government. That appeals to those on the right, because, as a program voted in during the Reagan years, it limits eligibility to only those who work, and by making that the condition for augmenting their low wages it encourages people to stay in the work force. Okay, but it is curious that conservatives would want to expand a government dole, and even argue that the work component plays to workers' dignity, whereas the minimum wage, which workers see themselves earning directly in their weekly paycheck, is what workers view as demeaning. Really? Did anyone ask the workers?

Both the EITC and the Republican expansion plan are defective for being a tax credit, though, because it is paid once a year, is based on the prior year's income tax return, and is therefore paid well after-the-fact. A smarter plan showed up in a New York Times op-ed by Owen Cass, a fellow at the Manhattan Institute, a conservative think tank whose op-eds regularly appear not at the Times but at the Journal.

Cass proposes a direct wage subsidy paid to low-wage workers. A "target wage" would be established proportional to the median wage in each market area. The employee's paycheck would be supplemented by an amount equal to the difference between the target hourly wage and the actual wage paid by the employer. The worker gets the money straightaway, in every payroll, and into the economy that extra money is sure to go then and there, instead of what Cass calls the "boom or bust" of the delayed annual payout. The author claims that the government could cover the cost with $150 billion replacing the $65 billion now spent on the EITC and the long list of social programs. Cass doesn't go into the mechanics, but the employer would have to compute and finance the payment for each employee based on the government's published market target, so the program would require near instantaneous reimbursement from the government or a perpetually topped up advance account for each employer.

Is $15 realistic?

In "What’s Going to Happen to Your Social Security?", we conclude by saying that we must go to $15 an hour to enable workers to provide enough for their greater longevity. But that is a separate imperative. When the minimum wage is considered on its own, the more feasible national floor would seem to be $12, and that reached over three-four years (and then indexed to inflation). The reason is the different economic levels across the U.S. and the common sense avoidance of setting a wage that exceeds the median wage of a given state or area. High-cost Alaska, where the median is over $22 an hour, could manage $15, for example, but at 155% of Puerto Rico's low-wage median it would be ruinous. The federal minimum should be just that — a rock bottom to protect workers. Each state and city would continue to be free to set its own wage above the federal level.

Oregon has just gone a step further. It plans increases across six years that will take the minimum to $12.50 in rural areas, to $13.50 in smaller cities and $14.75 in metro Portland.

Meanwhile, as the states take charge, Congress continues to do nothing.

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