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President Obama has once again set out to impose social justice at the expense of the very people he seeks to help. He proposes an increase in the minimum wage from the current $7.25 to $9.00 per hour. Sounds reasonable enough. But how does increasing the minimum wage by 24 percent improve the job prospects for someone who is unable to find work at the current wage.
The Bureau of Labor statistics informs us that in 2011 only 2 percent of full-time workers were employed at or below the federal minimum wage. A small percentage of those workers, notably waiters and waitresses, were below the federal minimum on paper but probably above it in total compensation. Those without a high school diploma were more than twice as likely as graduates to receive minimum wage. More than half the recipients were under 25 years of age. Married workers are far less likely to receive the minimum than their unmarried counterparts. A substantial number of full-time workers receiving the minimum were concentrated in Texas, Mississippi and Georgia.
The world hasn’t changed that much since I first entered the working world in 1964. Nearly everyone I know started working at minimum wage. All of us graduated from High School. None of us had children before taking our first job. Few, if any of us were minimum wage material at 25.
The minimum wage was never intended to support families. Low wages provide an avenue into the work force for the young, the uneducated and the low-skilled candidate. From that point, workers improve their station by establishing their value in the workplace and acquiring additional skills and further education.
Minimum wage is a snapshot of transient value. I spent the past 40 years in the piano delivery business. My time still bills for over $40 per hour. In my part-time job, I deliver lawnmowers. My value drops to $13 per hour. As a pianist, I am unemployable at $7.25. Raising the minimum will not get me an opportunity to play piano. Lowering it to $2 might. Low wages are simply an opportunity for an opportunity.
How much does $9 an hour cost the employer. Using my own work experience as a guide, the employer in Wisconsin would pay 7.65 percent in FICA taxes, up to 6.50 percent in state unemployment taxes and workers’ compensation in the 9 to 13 percent range. The rate changes from year to year (currently 10 percent plus deposit premium). as does the individual unemployment tax rate which fluctuates based on claims against the account.
Depending on those factors an employer will pay somewhere between 18 and 28 percent over and above the minimum, raising the outlay from $10.60 to $11.50 per hour. If the employer opts out of health insurance and pays the penalty, the fine will add another $1 per hour to the above amount raising the minimum wage outlay to $11.60 to $12.50 for each and every hour worked. ( It is important to note that no one in my industry pays minimum wage or close but some landscape laborers, dishwashers and painters have similar percentage costs incurred against lower wages.)
However well-intended the president’s help, you cannot save anyone from poverty by closing the door to the job market.
Increases in minimum wages are financed in one of three ways 1) employer voluntarily absorbs the costs 2) employer cuts the wages of more productive and higher paid employees 0r 3) layoffs or cutbacks in new hiring.
The evidence on minimum wage is pretty clear. If you want to help the underemployed, cut the corporate income tax and leave the minimum wage alone. Once employed, the passing of time, the acquisition of skills and personal ambition will solve the poverty problem.