When President Biden first was sworn in, it seemed that the new administration would push through a much higher federal minimum wage. In his nearly $2 trillion stimulus package a provision that would have mandated a $15 minimum wage for all private-sector employees was removed in the bargaining between Congressional Democrats and Republicans. Whether it will be re-introduced later this year is probable but not assured.
For years, Louisiana has linked its minimum wage to the $7.25 minimum wage of the federal government. However, Governor Edwards has stated publicly that he supports an increase in the minimum wage to $15 per hour. Senator Troy Carter has introduced SB 49 that (a) mandates a $15 minimum effective immediately on January 1, 2022, (b) raises the minimum to take into account increases in the Consumer Price Index effective January 1, 2023 and every year thereafter, and (c) raises the Louisiana minimum to the federal minimum whenever the federal minimum is higher than the state minimum.
As to SB 49, adjusting the minimum to the CPI effectively transmits the higher minimum to higher producer costs and higher retail prices year after year in a circular manner. It would be much more effective to adjust the minimum to increases in labor productivity which virtually every economist agrees is the source of real wage increases. The necessary data on productivity are readily available by sector, industry, and state at https://www.bls.gov/lpc/tables_by_sector_and_industry.htm
From a more general perspective, one of the main problems with a mandated higher minimum wage, whichever legislator’s proposal is considered, is that the party that does the mandating is not the party that pays the higher wage. With the approval of the governor, the state legislature does the mandating, but does not appropriate the money. The employer pays and in turn likely will attempt to shift the cost to others.
The parties that purchase from that private employer may find that the price they must pay for the goods she produces is higher than before. They may stay with that employer and pay the higher price or find comparable products at better prices and take their business elsewhere.
Doubling the minimum to $15 has one of two probable effects on current workers. If employers retain everyone on their workforces, a subtle redistribution effect is mandated for those employees currently earning more than the $15 minimum who may be denied wage increases in the future while their employer absorbs the higher minimum. If the employer discharges some of the lowest-wage workers, the workers who are retained may find their job descriptions are changed to take over the work done by lower-wage workers who have been dismissed because their productivity does not allow paying them the higher minimum wage.
In the end, the owners of the business may pay in the form of reduced profits. If that response drives profits to a level unacceptable to the owners, they may shut down the business for better opportunities elsewhere including out-of-state opportunities.
For years economists have disagreed as to the specific impacts of a higher minimum wage given the way in which the higher cost may be shifted to others. One way of describing the problem of measuring the various impacts is that it is similar to the experience of trying to follow a person who is running away in the dead of night, slips around a corner, and disappears from sight.
How would the new higher minimum apply to a small family-owned business, say a donut shop or small farm or nail salon, where the husband and wife own and work in the business and where one or more of their children work as well and no one takes home a wage because the entire family shares the profits that the business is able to achieve? Would a $15 dollar minimum wage, strictly enforced, improve the financial circumstances of this family?
What’s to stop landlords with housing in low-income neighborhoods from raising rents knowing that with the much higher minimum wage their renters are earning more than before? What’s to keep convenience stores in those neighborhoods from raising prices?
Some activists hold the opinion that if an employer cannot afford to pay a $15 minimum wage that employer should not be in business. If the higher minimum forces her out of business, good riddance! Then what happens to her employees?
What’s to keep employers from replacing some of their lower-wage employees who are eligible for the higher minimum with lower-paid, off-the-books, undocumented immigrants who are afraid to report this violation for fear of being deported?
To some who are enamored of the power of the federal government, the answer to pushing rents higher in low-income neighborhoods is another mandate — rent control.
The answer to pushing prices higher is another government mandate — price controls.
The answer to a small family-owned business that doesn’t pay wages because it shares the profits across the family is federal inspectors who arrive on site and mandate that it must maintain a payroll.
It is not enough to raise the minimum wage to whatever seems to provide a so-called living wage if there is no regard at all for the employer’s ability to pay that wage. The new minimum wage must adapt to market realities because every private-sector employer in the end meets payroll from sales revenues. The new minimum must be a sustainable wage, a wage that allows the employer to remain in business.
When the productivity of the worker is sufficient to pay the new minimum that new wage is a sustainable wage. When it does not, efforts should be made by the employer and others such as public community colleges and private occupational training centers to help employees lift their productivity so that they can earn the new minimum with their own efforts.
Under those conditions, the new minimum does not bear so heavily on employers that they are forced to shift all of the cost to others.
A state legislature that knowingly passes a minimum wage which is not a sustainable wage, and a governor who signs that law, are not taking into account market realities and are acting irresponsibly. When they mandate a wage that is not sustainable, forcing employers with razor-thin margins to close their doors, the legislature and the governor are hurting the very workers they say they want to help. It is not only irresponsible, it is counter-productive.
Considering the doubling of the minimum wage to $15 proposed in SB 49, legislators ought to turn to the first principle utilized by medical practitioners as how best to proceed. FIRST, DO NO HARM.
Edward J. O’Boyle can be reached at 381-4002 or firstname.lastname@example.org.