Newsom’s minimum wage scam exposed

Democrats have been the party of the minimum wage since the New Deal days of Franklin Roosevelt.  Democrats sell it as a benefit to workers specifically – and the economy generally.

It is one of those snake oil policies that is long on alleged benefits but does no good other than politically benefit those who proffer the false benefits.  In most cases in the past, the alleged “benefits” get most of the media attention, while the real negative impacts of a minimum wage increase are lost in the political fog.  Wages and employee benefits are best left to market forces.  Diddle with that and the market forces respond in punitive ways.

Interestingly, many of the very real negative impacts of California Governor Gavin Newsom’s $20 minimum wage increase are not being lost.  The public is seeing in real time the downside of minimum wage increases.

We first must understand why setting arbitrary minimum wages creates unfortunate results that far outweigh alleged benefits – and there are damn few of them.  Let’s look at the economic effects of arbitrary (politically) raising the minimum wage. First the positive.

  1. A very small number of workers will get a pay raise. Full-time hourly workers (35+ hours per week) who make less than the minimum wage are approximately 1 percent of that work force.  For part-time hourly workers, it is 3 percent of that work force.  An increase in the minimum wage MAY increase their income and purchasing power –BUT ONLY FOR A SHORT TIME.

There you have it.  The sum total of all the positive benefits of an increase in the minimum wage – and only for a VERY small number of individuals for a very short time.  So, what are the downsides – those outcomes driven by market forces.

  1. The most obvious is increases in the costs of goods and services – most notably in the economic sectors with the most part-time workers or lower income workers.  The Newsom minimum wage has resulted in widely spread price increases – generally in the range of 20 to 40 percent.  That impacts on the purchasing power of millions of customers – and hits the lose income families the hardest.
  2. Reductions in work force.  In order to avoid price increases – or even in view of them – employers control their personnel expenses by decreasing the number of workers.  People lose their jobs – and that is happening in real time in California.
  3. Postpone future or anticipated hiring.  Businesses planning to expand their work force delay or drop those plans altogether.  Unemployed individuals, who would be getting a job, do not get a job.
  4. Reductions in hours worked.  To adjust to the new minimum wage, employers can – and do — reduce the working hours for those in their employ.  Even the person getting a minimum wage increase will find that their total paycheck has not increased.  More money for  fewer hours.
  5. Reduction or elimination of projected pay increases.  Economic growth and competition for employees tends to result in periodic wage increases.  The worker gaining a wage increase – based on a mandated minimum wage – and those whose wages already exceed the new minimum wage – will not see those “normal” wage increases for an extended period – essentially wiping out the short-term purchasing power benefit from the imposed minimum wage increase.
  6. Eliminates the jobs of short-term casual labor, such as internships and so-called odd jobs.  It negatively impacts charitable labor in which individuals work semi-voluntarily for a very small compensation.
  7. Contributes to inflation.  Some economists argue that a minimum wage increase is not sufficient to impact seriously on inflation – ironically refuting the claims by politicians that increasing the minimum wage has a positive impact on the economy.  But the increase does increase prices – and most often in businesses with a high volume of customers.
  8. Loss of tax revenue.  The increase in the minimum wage produces little to no additional tax revenue from those receiving it – many of whom pay no tax at all.  It does, however, add to the tax burden for other workers by reducing income tax revenues from discharged workers … increasing the cost of unemployment compensation … loss of tax revenue from lower profits … loss of tax revenue from businesses shutting down.

Increasing the minimum wage by government directive produces no discernible benefit to the economy or to the vast majority of workers and consumers.  We see virtually all the aforementioned results in the news reports coming out of California.  We are seeing, in real time – businesses raising prices, laying off workers and going out of business directly related to Newsom’s unfortunately imposed increase in the minimum wage.

Proponents of an imposed minimum wage talk about the need for workers to have a “living wage.”  The lowest pay scales in the economy are not … never have been … and never will be … a “living wage.”  

The economy needs a less than living pay scale for those who do not need a “living wage.”  That includes interns and student summer workers.  Folks in which the job is a second income – to enhance the “living wage” income of a spouse or parent.  It can be to enhance welfare or Social Security.  The imposed minimum wage will effectively prevent those folks from having any supplemental income.  The minimum wage tends to make such casual labor unaffordable.

A level of compensation below a “living wage” is an integral part of the economy. Removing that from natural market forces does grave damage to the economy and to the millions of people who live in it.

Footnote: Over and above the economic realities of a politically imposed minimum wage, Newsom’s specific proposal is rife with political favoritism.  It is a bad idea further corrupted by political chicanery.

So, there ‘tis.