Can a Minimum Wage Hike Help the Unemployed?

Chicago will increase its minimum wage to $13 per hour. This is obviously good for those who will see their wages rise to $13. But what about those who are unemployed?

Minimum wage laws are nothing more than attempts to amend “the law of supply and demand.”

There is a reason Giancarlo Stanton was given a 13-year $325 million contract ($25 million a year) to hit a baseball by the Florida Marlins. He does it in a way that only a handful of people on this planet can do it. And a great many people are willing to pay big bucks to see him do it. The Marlins were not compelled by any minimum wage law to offer Stanton this contract. They did it voluntarily because they thought Stanton’s drawing power would produces revenues in excess of the cost.

But what if the Marlins had opted not to pay Stanton his $325 million? Could they have signed an equivalent player for substantially less? What if the Marlin’s had offered to pay Stanton $7.93, the Florida minimum wage? Do you think he would have signed? Would any other equivalent player who hit about .288, with 37 home runs and 105 RBIs sign for $7.93 per hour?

It is not an easy thing to hit major league pitching. Very few people can hit fastballs that come to the plate at 95 mph, sliders that look life fastballs until they break at the last minute, and change-ups that leave the pitcher’s hand looking like a fastball, but come up to the plate about 10 mph slower.

Michael Jordan was one of the greatest athletes America has ever known. He tried baseball for one year in 1994. He managed to hit .202 with 1 home run at Class AA Birmingham! Last year in the majors, out of roughly 750 players, only 29 hit .288 or better; only 11 hit 30 homers or more.

But regardless of what Giancarlo Stanton is paid, that has no effect whatever on teacher salaries.

There is a reason why teachers start at disproportionately smaller salaries. There are far more people who want employment as teachers than there are available teaching positions. All applicants have the required education and licenses.

Presumably,  they can all do the job. But nobody is willing to buy a $100 ticket to see them teach.

According to a January 2014 Program Evaluation report, the average starting salary for an Illinois teacher is about $36,636 annually. And according to USA Today (Feb. 19, 2013), “The nation is training twice as many K-5 elementary school teachers as needed each year, while teacher shortages remain in the content specific areas of math, science and special education.

“Illinois trained roughly 10 teachers for every one position available.”

But what would happen to starting teacher salaries if there were 100 positions that needed filling, and only 25 teachers seeking employment? Because demand would exceed supply, there would be a bidding war, and salaries would go up to attract the best and brightest.

There is a reason Walmart and McDonald’s can pay $10 per hour. There are a great many more workers who want jobs than there are jobs. When there are 100 people willing to work at $10 per hour, Walmart can ignore the retired $100K executive who is willing to work at $25 per hour, and hire from the pool of 100.

When the minimum wage is increased, the Walmarts, as well as small businesses, have choices to make. They can

-- Pay the new increased minimum wage, “eat” the increased cost of doing business, and accept a diminution of net profits:

-- Pay the new increased minimum wage to some workers, and hold down costs by discharging other workers, or

-- Pay the new increased minimum wage and pass the cost on to customers.

What happens when a business is operating on a tight margin and doesn’t believe it can pass its increased labor costs on to customers? If it can’t risk increasing its costs, it has two options:

-- Fire enough workers to offset the increased cost of labor for others, or

-- Go out of business.

Of course. it can risk doing business as a loss; but why?

According to Forbes (Feb. 20, 2012), the “unemployment number ... reported at 6.2 percent ...  is simply misleading.  ... According to the U-6 report, the ‘real; unemployment rate is 12.6 oercent,” which includes those who have not looked for work during the four weeks.

But in the black community, Newsmax stated on Nov. 27,  the unemployment rate is worse: 11 percent  and for young black men (ages 16-21),  21 percent.

So what happens, when the president issues an executive order granting work permits to 5 million illegal immigrants? How many of those will be competing for the minimum wage jobs that are out there?

How does flooding the labor market with 5 million illegal immigrants help the 12.6 percent of Americans and the 21 percent of young black American males who can’t find employment? Increasing the supply of unemployed workers by 5 million only guarantees employers a larger pool to pick from, and it removes pressure for them to pay better wages.

A far better plan, would be for the government to work to create a job market where there are more jobs than applicants. If Walmart and McDonald’s need 1,000 workers, and there are only 100 available, wages will increase and no minimum wage law will be needed. The law of supply and demand will do the job better than any minimum wage law ever could.

Flooding our job market by providing illegal immigrants with work permits only increases the worker supply while at the same time driving down wages.

President Obama’s executive order will only exacerbate America’s unemployment situation!

Posted Online:  Dec, 6, 2014 12:00 am - Quad-Cities Online
by John Donald O'Shea

Copyright 2014
John Donald O'Shea


 


 

Minimum Wage Job Better For Society Than No Job

Working at minimum wage is not fun. It's not glamorous. But those who do, clearly benefit society.

Don't get me wrong. I would not be satisfied with my healthy college-educated daughter being satisfied with a minimum wage job. But I would rather see her work at a minimum wage job than spend her days at the beach, and living off a SNAP card and the largesse of friends.

The U. S. Bureau of Labor Statistics tells us, in addition to the "unemployed who are actively seeking work," that 2.3 million more people "are unemployed and have quit looking for work."

"In August (2013) 2.3 million persons were 'marginally attached' to the labor force ... not (currently) in the labor force, (but they) wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as 'unemployed' because they had not searched for work in the 4 weeks preceding the survey.

"Among the 'marginally attached,' there were 866,000 'discouraged workers' ... persons not currently looking for work because they believe no jobs are available for them."

So, imagine two men on welfare. One is "genuinely needy" and is genuinely incapable of working (owing to permanent or temporary disability). The other, though presently poor, is capable of working at a minimum wage, but considers working for minimum wage beneath his dignity and prefers to get by with a SNAP card and the assistance of his friends.

The Illinois minimum wage is $8.25 per hour. A person who makes it will earn, if he works a 40-hour week for 52 weeks, $17,160 per year. Hardly a satisfactory income, but $17,160 better than nothing!

Now consider the 2012 federal tax consequences (for a single person). The Standard Deduction was $7,400. The Personal Exemption was $3,800. As such, the first $11,200 of income is not subject to federal income tax. Assuming the remaining $6,000 was not subject to any further credits, federal income tax to be paid would be about $600. That is not much, but if 2.3 million "marginally attached" people were to pay that much, the U.S. Treasury would take in an extra $1.38 billion.

On the other hand, when you start talking about Social Security and Medicare taxes, you're talking about bigger money. A person working at minimum wage pays both into both. For ease of computation, let's assume the minimum wage is $10 per hour (rather than the actual $8.25).

If a person earns $10 per hour, and works 40 hours per week, his gross income is $400 per week. If he works 52 weeks a year, his annual gross income is $20,800.

The FICA and Medicare payroll tax for 2013 is 7.65 percent of wages up to $113,700. (6.2 percent for Social Security plus 1.45 percent for Medicare). And the employer matches that. If you are self-employed, the tax is 15.3 percent (12.4 percent for Social Security plus 2.9 percent for Medicare).

Therefore, an employee with an income of $20,800, pays $1,591 (for FICA and Medicare); his employer also pays $1,591. A self-employed individual pays the same: $3,182 ($1,591 times two).

If 2 million more people earn $20,800 per year, The U.S. Treasury takes in an additional $7.32 billion in Social Security and Medicare taxes each year.

Why is that important? Consider a May 31 report in "The Hill" (thehill.com/blogs/on-the-money/budget/302719-social-security-insolvent-by-2033#ixzz2gaTypMty).

"Medicare will reach insolvency by 2026 ... Social Security's two trust funds (old age and disability) will become insolvent by 2033 ...

"... (The) Social Security (old age fund) will no longer be able to pay full benefits to retirees after 2033. Only three-quarters of benefits will be delivered after the projected insolvency date."

"The trust fund that pays disability benefits through Social Security is headed for insolvency in 2016 and will only be able to pay out 80 percent of benefits after that date."

So what am I trying to say? People who are genuinely in need are the only people who should be getting welfare or social justice distributions. They would include people who can't work because of temporary or permanent physical or mental disability -- such as a disabled child, a mentally impaired adult or a wounded soldier. A compassionate society clearly has a social justice duty to those who can't help themselves. A person who has no ability to work, has no duty to the state or the taxpayers to work.

But what about people capable of working, who are temporarily out of work? I suggest that while they may be entitled to reasonable temporary assistance for a reasonable period of time, that they have a duty to minimize the amount of assistance needed by taking work -- even at a minimum wage job. When they pay federal, FICA and Medicare taxes they contribute to the long term solvency of the Social Security and Medicare funds, and more slowly deplete what would be available to assist those in more profound "genuine need."

Simply, people capable of working, but who refuse to work, should not be getting social welfare money. As St. Paul said in II Thessalonians, "He who will not work, shall not eat."

So my point is this: A single person who works and makes minimum wage helps support himself, contributes tax dollars to the welfare, Social Security and Medicare funds, reduces their rate of depletion, makes additional dollars available for those needier than him, and derives a degree of satisfaction by being productive and by being a contributing member of society.

Posted Online: Oct. 23, 2013, 11:00 pm - Quad-Cities Online
by John Donald O'Shea

Copyright 2013
John Donald O'Shea