Minimum Wage Versus The Cost of Labor

It’s time that I addressed my thoughts on the Minimum Wage and the Cost of Labor. The first term is getting plenty of press at the national and local levels sometimes including a Living Wage…but the Cost of Labor for the most part is being overlooked or given extremely short shrift. I am not an economist by any means and my classes in macroeconomics and microeconomics were taken about 20 years ago…so I am not going to talk as an expert nor go into all of the mind numbing details. So at a rather (I hope) common sense level,this is what I see!

For most small businesses the cost of labor is the hourly pay rate, the employers FICA (Social Security) contributions, employers unemployment taxes and not much else. For larger businesses this list grows by the number and amount of benefits they provide their employees…life insurance, employer 401(k) contributions, employer portions of health benefits and such. Somewhere in there is lost productivity due to holidays and vacations but I doubt anyone actually accounts for that.

Now, I am going to state that those items aren’t the Cost of Labor in the real world. What we need to examine is what does it really cost society to have an able employee arrive at the employers door in time for his/her shift. That’s a far broader spectrum of things but keeping it simple it includes at minimum food, shelter, clothing, transportation, education and health care.

When the minimum wage doesn’t cover the minimum cost of labor we end up with employees who have to rely on government programs like medicaid, Badgercare, food stamps, and other social welfare programs to just get by. Many of these Americans work just as long and as hard as the rest of us but aren’t making ends meet. They may even have to work two jobs and are still coming up short. I am not telling any of you anything new here…it’s been well documented in the various mass media outlets. These are our friends and neighbors who the conservatives have decided to label ‘takers’. I am sure we all know people in these circumstances.

So many politicians and activists on the left are supporting increases in the minimum wage or calling for a living wage. And there is a fair amount of disagreement on what those different wages should be. We’ve seen quotes from Washington in the $10+ per hour range, fast food workers holding walkouts demanding $15 per hour, and County Supervisor David Bowen calling for $12.45 per hour. I am sure we can poke a hundred different economists and get a hundred different answers…but it time to address current legal wage structures and the cost of labor.

So why do we need to increase the minimum or create a living wage? Because when an employer doesn’t pay the employees enough to cover their costs to provide the necessary labor…the government if picking up the slack. Here is an obvious blatant redistribution of wealth…from the taxpayer to the business with the taxpayer not getting the better end of the stick. The business is understating its costs, is undercharging for its products, and the taxpayer is subsidizing the balance. It is these businesses who are really the ‘takers’.

So what happens when we create a new wage structure? Well certainly every employer’s costs increase to match. Prices to consumers will probably increase as well. But finally the true cost of labor will be assigned to the actual revenues they generate. Will that result in a loss of business? Maybe just a bit but now consumers are being charged the cost of doing business and can make rational decisions on the true value of a product or service. Today the true cost/value of those items is hidden in these government subsidies. But overall the wage earners making the new minimum wage will have more disposable income…and they can be the tide that raises all boats.

Will there job losses…a recent study says job losses related to minimum wage increases are statistically equal to zero.

There have been a number of snide rejoinders in the letters to the editor section of JSOnline about the minimum wage. You can hear the choruses shouting that if we implement a living wage we don’t need medicaid, rent assistance, food stamps, etc. Well YES…that is the point…provide a living wage so most Americans don’t need safety net assistance…but until we have the actual wherewithal to eradicate poverty, those programs won’t completely disappear.

But Ed, isn’t a mandated minimum or living wage an interference in the free market? Hmmm…like subsidizing business’ cost of labor all of these years hasn’t been?

7 comments to Minimum Wage Versus The Cost of Labor

  • Charles Kuehn

    Excellent. Another example of how a conservative can be defined as someone who knows the price of everything and the value of nothing – be it labor or material goods. Value being something substantive; price being an abstract dependent upon the (often manipulated)state of the Almighty Marketplace.

       1 likes

  • AJ

    I like what you wrote Ed, and we do need to enact a living wage at the Federal or once Democrats get back in charge State level. Basing our argument on a set dollar amount, as you stated will not help us as much as stating what a living wage means for people.

       0 likes

    • Ed Heinzelman

      Thanks AJ…in one of my mental drafts I was going to elaborate on the notion of a fixed minimum wage a bit more and liken it to the federal debt limit…a limit that relies on a fair amount of artifice and causes a fair amount of turmoil every time it needs to be reconsidered…but it didn’t make it to the written version.

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  • nonquixote

    How could we begin to find the means to finance a minimum wage, another article from Common Dreams,

    Seven Ripoffs That Capitalists Would Like to Keep out of the Media
    http://www.commondreams.org/view/2013/12/16-1

    Said it before I know, No War But Class War.

       0 likes

  • jerry person

    Any wage less than $15 per hour is corporate welfare. Like Walmart workers the state picks up the tab for the rest. $20 per hour is a living wage.

       0 likes

  • jerry person

    If accompany can not pay the wage get off the side walk. Make room for the big boys. Walkers pro huge corporation hand outs are small business worst enemy not wages, You can not compete with state welfare corporations like Walmart and Koch industries.

       0 likes

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