A Minimum Wage Impacts Everyone
The battle to legislate and enact a minimum wage in the United States goes back nearly a century to 1912 when Massachusetts was the first state to legislate wage salary requirements. In this particular case, the legislation was specifically aimed at improving the wages paid to women and children—two groups who, at the time, were regularly taken advantage of in the workplace. But not until 1938 following the New Deal was a minimum wage permanently enacted on the Federal level for all workers in the United States. In the late thirties, the minimum wage stood at 25 cents per hour.
Today, the minimum wage directly impacts only a small portion of the workforce. According to demographic studies, part-time employees under the age of 24 are most likely to be working at a minimum wage level. One study that examined minimum wage workers in Pennsylvania found that 65% of minimum wage workers live at home with their parents, and only 10% are the sole earners in family with children.
Despite these statistics, the minimum wage remains a heated topic of discussion for liberals and conservatives alike. Even Governor Schwarzenegger of California, a Republican, has suggested raising his state’s minimum wage to $7.75 per hour. But Ray Haynes, an Assemblyman in California’s 66th District, has challenged Schwarzenegger’s plan by noting that “Even if you do not pay the minimum wage to more than a handful of employees, the inflationary impact it has on the entire salary scale can be significant.”
On first glance, for manufacturers, Hayne’s. statement appears logical. This is because domestic manufacturers that maintain operations in the US will increasingly have fewer jobs to offer at the minimum wage level. But the question, as Haynes points out, will be whether the minimum wage exerts upward price pressure on more highly paid jobs. This question might become secondary, however, because as domestic production jobs continue to require new levels of technical skills, manufacturing labor costs will see upward price pressure, not downward, as labor demand outstrips skilled supply. As we noted in the January 2005 Publishers Page, there is “a widening gap between the supply of skilled workers and manufacturers’ growing technical demands.”
This is not to say that an increase in minimum wage will benefit the overall economy—and that manufacturers should ignore then issue entirely. In fact, an increase in minimum wage will probably have a negative impact, if history is an example. According to a study authored by Kevin Murphy at The University of Chicago and Donald Deere and Finis Welch of Texas A&M University that examined the impact of a minimum wage increase between 1990-1991, “[our] conclusion is simple and direct: to the extent that increased minimums raise the cost of hiring low-productivity workers, fewer of those workers will be employed.”
These academic findings continue to prove themselves out in the real world. Consider the case of San Jose, California, which has benefited from a tremendous high technology boom in the past decade. One would expect that lower-wage, predominantly service-based employment would benefit as a by-product of this growth. But thanks to a new “living wage” ordinance in San Jose requiring businesses contracting with the city to pay workers at least $11 per hour, the opposite has been the case. In fact, the city has lost over 120,000 jobs in recent years. In practice, what happened as a result of these requirements is that businesses fled San Jose to neighboring communities (or closed up shop entirely), leaving the area with higher unemployment—hurting the local economy, despite a boom in higher paying technology-related jobs.
One can hardly imagine the impact that minimum wage requirements like those of San Jose might have on areas without such a strong economic base. The results could be catastrophic for entire regions. And that is why manufacturers should pay attention to the minimum wage debate, even if they believe it does not impact them directly.