April 4, 2013

Maine Voices: When a higher minimum wage works against the lowest earners

Devalued currency is an unintended consequence of government tampering with the labor market.

By Terrence L. Magee

BRYANT POND - Why are the Democrats in the Maine Legislature so intent on cutting the wages of the middle class?

L.D. 611, a bill that recently received initial approval from both the Maine House of Representatives and the Maine Senate, would raise the minimum wage from $7.50 to $9 per hour.

At a quick glance, this would seem to be a good thing. After all, who wouldn't like more money, and a rising tide floats all ships, right? Unfortunately, this rather simplistic assessment doesn't take into account real-world factors.

Much has been made about the effect that raising the minimum wage would have on the "working poor," and an equal amount of energy has been expended attempting to discount this argument by noting that most minimum-wage earners are younger people in entry-level positions.

In an effort to clarify this, it might be helpful to develop a scenario and put a face on this minimum-wage earner.

Julia is a young woman who got her first "real" job while in her junior year at high school.

She lived at home with her parents who both worked. While they wouldn't be considered wealthy, they made enough to pay the bills and save for a modest vacation each year.

Julia began working part-time at a neighborhood shop for the minimum wage of $7.50 per hour. The majority of the money she earned was saved, although she spent a portion on herself. Following her graduation, Julia did not have enough to attend college so she decided to work full time to save more.

Using the skills she had developed in her part-time job she was able to secure a position with a company where she began at $17,000 per year. She was a diligent employee and received a 3 percent raise at her annual review. Her annual wage is now $17,510.

She decides that she will get an apartment with a friend and go to school part-time so that she can continue working, because things are going well at work and she is excited by the efforts to raise the minimum wage.

Living as an independent woman is exciting, and Julia feels she is well launched in life and considering making a career at her present company. She is proud that the state of Maine has raised the wages for the lowest earners and equally proud that she is now earning her own way in life.

Unfortunately, prices seem to keep going up and she can never quite get ahead. Her annual review comes around again, and she gets an additional 3 percent added to her wages, so she is now making $18,035.30 a year.

The following year, she is awarded another 3 percent and now brings home $18,576.36. She is feeling good about herself and her ability to work hard to increase her wages.

A month later, in July 2016, her supervisor calls Julia into her office and explained that Julia would now be making the minimum wage.

Julia is incredulous. She has worked diligently for three years and received the highest raises permitted each year. How can this be?

Her supervisor explains that the minimum wage has been raised each year and that Julia and all the entry-level staff hired in the past three years will now be making the same amount.

What Julia finally realizes is that she has been sold a bill of goods. Yes, an increase in the minimum wage does increase the numbers on the money in her pocket, but it decreases the value of those numbers.

As the minimum wage goes up, so does the cost of everything else because all the people making and selling those things need to make money to cover their payrolls. Money is not magically created by legislative fiat.

The value of a dollar in 1938, the year minimum federal wage laws were enacted, was relatively unchanged from its estimated value 72 years earlier in 1866 (96 cents).

Seventy-two years later, in 2010, that same 1938 dollar was worth 7 cents. The idea of a minimum wage is a chimera. The numbers go up, but the value goes down.

An increase in the minimum wage is simply a wage cut for those people who are earning a higher wage. It does not increase their buying power; it has the opposite effect by devaluing their money. Just ask Julia.

Terrence L. Magee is a resident of Bryant Pond.

 

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