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April 21, 2020

It’s Time for a $15 Minimum Wage – At Least

We Know It’s Deserved.

I’m economically conservative and a capitalist. Higher wages will tend to raise prices. There will be at least a marginal loss of job opportunities when paying very low wages is no longer an option. However, minimum-wage and near minimum-wage workers taking risks have made it possible for the rest of us to shelter at home. They earned a big raise. Many employers will not be able to afford higher wages in the tough times ahead UNLESS higher wages are required by law.

The minimum unemployment check is temporarily $600/week. That’s $15/hour for 40 hours of NOT working. Certainly the gross wages for working ought to be at least as much as for not working. Even if the unemployment payment comes down as currently scheduled; wages ought to stay at least at $15/hour.

Full employment was driving wages up above the minimum wage before C-19 hit. That’s great when it happens, but wages are likely to plummet as many people find that the jobs they had are not there to return to. We cannot let that happen. From a practical PoV, we as taxpayers will end up supplementing low wages with various forms of needed welfare. Frankly, I’d rather pay enough at the grocery store so that the grocer can pay workers a decent wage than have to make up the difference through taxes which will support the workers unevenly and much of which will have to pay for the bureaucracy which administers the various programs.

Businesses with low margins and for whom labor is a significant cost CANNOT pay significantly more than the prevailing wage or they lose business to competitors who pay lower wages and therefore have lower costs. When all competitors were forced to pay more due to low unemployment, individual businesses were not disadvantaged competitively by paying more. The purpose of a minimum wage is to avoid a rush to the bottom in tough times. All things being equal, higher wages mean higher prices which means less demand which means less sales. If there is a sales decline because of higher prices to pay higher wages, it will be spread evenly.

However, demand for essential things like groceries and trash-hauling is not very elastic. We have to eat; we have to get rid of the trash. Restaurants are more of a luxury, but the sad fact is that many restaurants won’t reopen. Those that do will not be able to serve as many people, at least initially, since there’ll be a need for distancing. It will not be terrible if restaurant wages go up, so long as wages go up for all restaurants.

Some costs are going to go down and those lower costs will at least partially make up for higher wages. The cost of oil today – for the first time in history – is negative. We won’t be paid to drive gas-guzzlers.  Oil won’t stay negative, but I think energy costs in general will stay historically low for years to come. That means the energy cost of farming, of manufacturing, and of transportation will go down. Downtown real estate may be cratered by Zoom; the cost of retail space is going down quickly. Unless the government pulls another massive bank and corporate bailout – which it may, the price of assets like planes, oil wells, and even banks themselves will fall. The cheaper these assets are, the less capital businesses need and the more people businesses can hire. Recessions used to cause this sort of redistribution of wealth – but, following the recession of 2008, wealth was protected by government bailouts and wage and employment growth were both sluggish for ten years. Let’s not repeat that mistake.

The $15/hour minimum wage should be federal. States, like businesses, have a competitive problem if they raise their minimum wages faster than their neighbors. States should be free, as they are now, to set their own minimums higher than the national floor as their conditions warrant.

There should be some narrow exceptions for very small startups, perhaps work-from-home jobs, and some summer jobs for kids. We are paying essential workers more now because we see they are essential. We owe it to these veterans of the C-19 war to pay them what they are worth when we’ve won.

See also:

Don’t Bail Out the Oil Industry (or the Banks)

We’ve Been T*RPed

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