The Real Cost Of A Minimum Wage Increase

Wednesday’s Washington Post has a long article about the current debate over yet another increase in the minimum wage that, inadvertently I can only assume, reveals most of the flaws in the arguments of those who advocate even the existence of a minimum wage:

ATCHISON, Kan. — It was payday. Money, at last. Twenty-two-year-old Robert Iles wanted to celebrate. “Tonight, chimichangas!” he announced.

He was on his way out of the store where his full-time job pays him $7.25 an hour — the rate that is likely to become the nation’s new minimum wage. Life at $7.25: This is the life of Robert Iles, and with $70 in a wallet that had been empty that morning, he headed to a grocery store where for $4.98 he bought not only 10 chimichangas but two burritos as well.

From there he stopped at a convenience store, where for $16.70 he filled the gas tank of the car he purchased when he got his raise to $7.25; then he went to another grocery store, where he got a $21.78 money order to pay down some bills, including $8,000 in medical bills from the day he accidentally sliced open several fingers with a knife while trying to cut a tomato; and then he headed toward the family trailer 19 miles away, where his parents were waiting for dinner.

Today in Washington, the House is scheduled to vote on whether to increase the federal minimum wage from $5.15 to $7.25. Passage is expected, with Senate approval soon to follow, and if President Bush signs the resulting bill into law, as he indicated he would, the U.S. minimum wage would rise for the first time since 1997, ending a debate about whether such a raise would be good or bad for the economy.

But even if the matter is settled in Congress, it isn’t settled at all in Atchison, and Robert Iles’s drive home is proof. Every stop he made on his ride home revealed a different facet of how complicated the minimum wage can be in the parts of America where, instead of a debatable issue, it is a way of life.

And here is flaw # 1. Here we have a 22 year-old single man, with apparently little more than a high school education and minimal skills, who is working as a cashier at a discount retail store. Are we supposed to be surprised that he’s only making $ 7.25 an hour ? What is he bringing to the table that makes him valuable to a potential employer to the point where he would be worth, say, $ 10 an hour, or more ? Quite honestly, am I supposed to feel sorry for this person ? Because, quite honestly, I don’t.

Those who advocate raising the minimum wage would have you believe that the people at the bottom of the wage scale are parents with children struggling to make ends meet. Here we have the classic counterexample. A single guy with, I assume, a high school diploma living with his parents. Again, why are we supposed to feel sorry for him ? Especially when he doesn’t seem to be making very good choices in life:

Robert Iles has his own version of a dollar’s meaning, learned last February when Bower took him aside and said he would be getting a pay raise to $7.25. “Okay,” Iles remembers replying, wanting to seem businesslike. “But inside I was doing the cha-cha-cha,” he said. “It was like going from lower class to lower middle class.”

Soon after, he bought his car, a used 2005 Dodge Neon

(…)

Seven dollars and twenty-five cents an hour equals $15,080 per year, and out of that comes $313 for the car loan and $100 for car insurance, Iles said, going over his monthly bills. An additional $90 for the 1995 car with 135,000 miles on it that he is buying from a friend for his mother, $150 for the family phone bills, $35 on his credit card, $100 for gas, $100 toward the mortgage on the trailer. “That’s about it. Oh yeah, $20 in doctors’ bills,” he said, and totaled it up on fingers scarred by surgical stitches. Nine hundred and eight dollars. “I bring home 900 a month,” he said. “So I very rarely have any money for myself.”

I’m sorry dude, but you don’t go out and buy a relatively new car, not to mention buying another one for someone else, when you’re only making $ 7.25 an hour.

Meanwile, Iles’ own employer brings the reality of the minimum wage debate home:

[M]eanwhile, Jack Bower wondered whose hours he will cut if he has to give his employees a raise.

It’s not that he’s against raising the minimum wage — “I don’t think $5.15 is adequate,” he said, adding that $7.25 seems fair — but his profit margin is thin, and wages are his biggest controllable expense. So if wages go up, he said, hours will have to come down, and the question will become: Whose?

Will it be Neil Simpson, 66, who works six hours a day as a stockman, and then five more hours somewhere else cleaning floors, and takes care of a wife who is blind and arthritic?

Will it be Susan Irons, 57, who was infected with hepatitis C from a blood transfusion, is on a waiting list for a liver transplant and needs more hours rather than fewer?

Will it be Christina Lux, who is 22 years old and 13 weeks pregnant?

Will it be Iles?

And then there’s the store where Iles bought those chimichangas:

“We’re at the bottom. If the minimum wage went up, I don’t know how we would make the cuts to cover it,” Michelle Henry said. The lone salaried employee, she works 80 hours a week to make up for the lack of workers. “I have mixed feelings,” she continued. “I know that people can’t afford to live on $5.15 an hour. But on the business side, small businesses can’t afford to pay it.”

In other words, both employers would be forced to do one of two things — cut hours or fire employees, both of which would hurt the people the minimum wage increase is supposed to “help.” And she’s not alone:

Iles handed over a $10 bill for his 10 chimichangas and two burritos. He stuffed the change deep in his pocket, and headed next to a convenience store owned by a man named Bill Murphy, who said that if he had the chance to talk to new House Speaker Nancy Pelosi, he would ask one question. “Where does she think the money will come from? And that is the question,” he said. “My wages are going to go up 10 percent.”

Unlike Jack Bower, who would compensate by cutting hours, Murphy said that in his two convenience stores there are no hours to cut. “I’m going to have to raise my prices,” he said — not only because his workers who make less than the new minimum wage would get raises but also because those who earn more would insist on raises as well. Employees at $7.25 will want $8.25. Those at $8.25 will want $9.25.

And thus, as always, those intended to be benefited will be harmed the most. Unfortunately, they don’t appear to recognize their fate:

Life at $7.25. Should that be the minimum wage?

“Yes,” Iles said.

Even if it hurts job opportunities for people like him, as Dennis Garrett had suggested?

“Yes.”

Or causes price increases, as Bill Murphy had suggested?

“Yes.”

Or damages businesses such as Always Low Prices?

“I mean, it’s tough for me, and I’m already making $7.25 an hour.”

Isn’t that better than not working at all ?

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  • PPLE

    You are deeply deeply misguided. So what if business has to raise its prices to pay an *almost* living wage? So what if business owners are faced with their own poersonal income pressures for not treating wages as importantly as they treat their mortgages and insurance premiums and other fixed expenses their business incurs.

    Capitalism – i.e. the commodification of labor for the purpose of concentration of wealth is inherently vicious – something your point out very well and with no credibly justification to back up your revolting disdain for the poor.

  • http://unrepentantindividual.com/ Brad Warbiany

    “So what?”

    So businesses will cut hours, fire people, and if it gets really bad (in any sort of manufacturing operation) will move offshore. Or they’ll just hire illegal immigrants under the table because it’s a better gamble to try to survive illegally than go out of business legally.

    And in the long run, those businesses who raise prices will lead to price inflation which then makes that new minimum wage just as low as the old minimum wage.

    That’s “so what”. It hurts business, it hurts workers, and it hurts the economy.

  • http://www.belowthebeltway.com Doug Mataconis

    PPLE,

    The problem with your argument is that, in many cases, businesses cannot afford to simply raise prices thanks to competition.

    Take, for example, the employer that Mr. Illes works for, or the place where he bought the chimichangas. They can’t afford to raise prices at the risk of losing customers to places like Wal-Mart. Therefore, they are more likely to cut hours or cut employees.

    Even so, let’s say they do raise prices. Who does that end up hurting the most ? The people like Mr. Iles who can least afford it.

  • J. Anderson

    PPLE your anti-capitalism ideology would only seek to punish those simply seeking the best existence for their families and themselves. This attitude of self betterment is at the heart of human nature but is tempered and misdirected by an attitude of entitlement taught by much of society.
    Wealth obtained by fair means by the educated (or uneducated)must be at the heart of a successful society. Without the potential of accumulated wealth and it’s provisions, those that would provide what we term as progress to our society would vanish leaving us with ONLY the Mr. Iles of the world.

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  • http://www.pubcrawler.blogspot.com/ tkc

    Oddly enough, the hike in the minimum wage will probably give and advantage to the Wal-Mart in Atchison. The explanation is here:
    http://pubcrawler.blogspot.com/2007/01/life-at-minimum-wage.html

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  • http://www.helvidiuspachyderm.wordpress.com theobromophile

    Liberals – those advocating most strongly for an increase in the minimum wage – act to make push small businesses out of operation, to decrease employment opportunities for the uneducated, and to increase incentives for illegal immigration. Ultimately, the minimum wage hike will increase the incentives for illegal immigration, because “Americans won’t take jobs that pay $5/hour, and our economy needs it.” Peverse indeed.

  • http://hathor-sekhmet.blogspot.com VRB

    No, what will happen Americans will get another job for $5/hour.