No minimum of debate

I noticed this week that the Maryland Reporter website had competing views on a statewide minimum wage increase from longtime Maryland political observer Barry Rascovar and from Benjamin Orr, who heads the Maryland Center on Economic Policy – one of those reliably leftwing advocacy groups with an innocent-sounding name. Rascovar warns about the “law of unintended conseqences” in his piece while Orr would like to have his cake and eat it too by also increasing Maryland’s Earned Income Tax Credit (EITC). I don’t claim to be an economic expert, but the EIC seems to me a handy method for wealth transfer since people using the EITC can receive a larger refund than they actually paid in taxes – instead of zeroing out tax liability, they receive additional money above and beyond a rebate on what the government originally confiscated from their checks via backup withholding.

And the reason this EITC change is important to Orr is the reason he doesn’t state – an increase in minimum wage earnings for a single person could push them over the limit to claim the EITC. Let’s do some simple math.

According to the IRS, for 2014 the EITC phases out at an earned income of $14,590 for a single person, so someone who works 40 hours a week at minimum wage isn’t going to qualify anyway. They would have to work fewer than 38.7 hours a week as a single person to fall under that threshold. Increasing the minimum wage to $10.10 per hour means the person could only work 27.7 hours a week before earning their out of the free government handout – obviously the MCEP wants to keep the goodies flowing.

Obviously being married with a non-working spouse would increase the income limit, but making minimum wage in such a situation makes the couple eligible for a total of just $587 between the state and federal EITC. On the other hand, raising the minimum wage puts the married couple over the threshold as well, thus Orr’s argument that we need both. But I think we need neither.

Raising the minimum wage may be good for the small number of workers who would be swept up in the eventual, phased-in increase, but it will be bad for those who would be considered working class but lie just beyond the $10.10 hourly threshold. No one is necessarily going to give a raise to the factory worker who makes, say, $14 an hour just because the minimum wage went up, but those who can still afford to employ workers will have to raise their prices to cover the increased cost of labor. The Dollar Menu at McDonald’s will have to become a $2 menu sooner or later. How does that benefit the middle class or those on a fixed income?

In a time when the employment market features dozens of candidates for each open position, forcing a wage increase is counterintuitive. Conversely, in those few truly booming areas such as energy-rich North Dakota or the Permian Basin in Texas, the market has determined a much higher minimum wage.

Closer to home, choices will have to be made by consumers who are being pinched by price increases everywhere they go, and prudent families may have to reduce their budgets for fun things like vacation or eating out. Using Salisbury as an example, we just lost another sitdown family restaurant this week when Mister Paul’s Legacy suddenly closed up shop. (This puts a dent in our Republican Club as well, as we’ll have to find a new location for our Christmas party. I also recall attending meetings of the Wicomico Society of Patriots and other fundraisers there as well.) Now some will blame the intrusion of national chain restaurants such as Buffalo Wild Wings or Longhorn Steak House (to name a couple which have opened here in the last two years) for the demise of this locally owned eatery, and they may have a point because they may be able to weather a localized wage increase better by raising prices across the board. Surely we pay for a little extra here at these chains for the people who work for them in areas where the wage level is higher. But I contend the overall pie is shrinking because fewer have jobs and increasing the minimum wage will further erode our local job market.

It’s all a question of value to the employer. One offshoot of the recent drive to unionize fast food workers and get them a $15 an hour wage was learning about automation overtaking that industry – for example, at Royal Farms you enter your order on a kiosk rather than speak to a counter person. By the same token, going to Walmart now can be done with little human interaction since the local stores have adopted self-serve checkouts. On a national scale, Applebee’s is bringing tablets to the table. While business has always trended toward automation and other ways to drive up efficiency, increasing the minimum wage may be a tipping point for new technology which replaces the fast-food worker or even wait staff.

In a perfect market-based world, people would be paid exactly what they are worth, a number determined by the value an employee’s labor brings to the employer. I have jobs for which I receive a wage which is agreeable to both me and the employer, and I have this enterpreneurial outlet which manages to pay for itself but is otherwise a loss leader, as I use it to showcase my writing talents. (How do you think I earned some of my paying jobs? And hitting the tip jar or advertising on this site is always encouraged.) Some in this avocation take the work even further than I do because their mortgage depends on it. Instead of a single employer, those of us who write in this arena depend on building a market share and making it economically viable somehow as writers, or as consultants, or in some other manner.

It’s all about what the market can bear, and the problem with the government putting its finger on the scale is that it makes a lot of hard-working people lose economic ground to benefit a select few. Until recent years, we had a thriving middle class which was upwardly mobile on a large scale, living a lifestyle comparable to those among their parents who were well-off. Raising the minimum wage simply accelerates the vicious cycle in which we are now trapped, for those who are deserving would earn their way off the minimum in due course anyway – they’re being forced, though, to carry a lot of excess baggage with them.

Let the market work its magic.