Small Raise, Big Trouble
February 14, 2013 by Ben Crystal
Forget everything else President Barack Obama said during the State of the Union address. Forget the unfunded education mandates, the empty promises to do something for the troops. Forget the pledge to eradicate AIDS (which not even Obama can accomplish by decree). Out of the wreckage of a speech that, I would suggest, was the worst Presidential speech since Jimmy Carter “lusted in his heart” came one demand that presents a clear and present danger: The President wants to increase the Federal minimum wage to $9 per hour from its current $7.25 per hour.
In theory, a pay hike for the bottom rung of the labor ladder sounds lovely. Stock clerks, grocery baggers and other low-skilled laborers will see an extra $1.75 for each hour of work. Across the Nation, the (primarily) youngest segment of the working population will pocket an extra $70 a week, based on a 40-hour workweek. Flush with the extra scratch, they will reinvest their hard-won extra wage in our growing economy, resulting in huge increases in face piercings, tattoos and energy drinks.
And then, just as they’re ready to move forward toward a brighter economic future, emboldened by their newfound success, reality will jump up and lift their wallets. Unfortunately, the increased outlay by their respective employers won’t be covered by income (since everyone in a position to hire low-skill labor will likewise be facing higher payroll costs — not to mention Obamacare’s higher expenses). As the economy grinds to a halt due to the cracks in the foundation caused by a Federally mandated pay raise sans increases in productivity normally associated with paycheck enlargement, one of the oldest economic laws in the world will kick in: last hired, first fired.
Small businesses that scratch their way to profitability — if that — obviously can’t afford to have their newest and least-skilled employees nab a raise with no increase in work. Neither can large corporations that employ dozens, hundreds or even thousands of minimum-wage workers. While Obama draws attention to corporate profits, he ignores corporate profit margins — often the difference between real profitability and bankruptcy. Imagine the impact an extra $1.75 per hour per employee working a 40-hour workweek would have on an employer.
While Obama might argue that an economically secure minimum-wage worker would be spurred to greater workplace accomplishments, the hard reality of minimum-wage labor belies his flight of fancy. The impact of a minimum-wage hike on small business would translate fairly quickly to larger businesses. As smaller businesses laid off workers to preserve razor-thin margins, the laid-off workers would stop spending. The sudden decrease in consumer spending would translate doubly to larger businesses, where a combination of loss of customer base would be compounded by a decline in consumer confidence. (With the new guy gone, the next guy on the ladder would get pretty nervous about his own job security.) That translates to less spending by people who have jobs, creating a dangerous cycle.
Meanwhile, there’s the small matter of the workers who have managed to secure themselves raises from the current minimum-wage to, say, $9 per hour. Congratulations to them. They busted their tails for nothing; Obama just handed the new guy a raise he didn’t earn. That’s essentially Obama’s amnesty for illegal aliens translated to economics. And with that, the economy takes another hit as worker confidence declines.
Fresh from nationalizing American healthcare, Obama wants to nationalize American payrolls. And all it will cost us is $1.75 per hour — and our souls.