May, 1989

Fruits of Thought

Raising The Minimum Wage

The highlight of this issue is our exclusive Second Annual Salary Survey of the produce industry. This survey covers owners, salespeople, buyers and merchandisers, groups of hard-working individuals, many of whom would question the adequacy of their pay for the hours of hard work they contribute. In any case, however, all these groups earn rather substantially above the minimum wage, and so it may seem that the battle to raise the minimum wage should not be an important matter to these people. I think it is important, however, in part because the issue itself is vital when it comes to providing opportunity for America’s poor, but also because the minimum wage battle is the opening salvo in a war to require businesses to provide benefits which elected officials don’t want to pay for with taxes.

In and of itself, the battle over the minimum wage has obvious importance to our industry. On the buying end of the produce trade, foodservice operators and retail stores are both dependent on labor that works at or near the minimum wage and which could be affected by an increase. On the producing side, many jobs in agriculture might be affected, and so the United Fresh Fruit and Vegetable Association has opposed the current legislative proposal to raise the minimum wage to $4.65 over three years. President Bush has said that he will veto any increase in the minimum wage which goes above $4.25 an hour and has proposed the option of a sub-minimum training wage at the current minimum wage level of $3.35 an hour for the first six months of employment.

To all who care about their fellow man, a proposal to raise the minimum wage has to contain a certain appeal. After all, how can one oppose lifting the incomes of the hardworking people struggling to make a living on $3.35 an hour? And indeed, in a society such as ours, in which welfare offers such a tempting alternative to work, doesn’t it behoove us to ensure that work always pays off better than welfare?

But the problem with the minimum wage quickly becomes apparent upon the slightest reflection. After all, if we could increase people’s standard of living by merely passing a law, why should we stop at raising the minimum wage to $4.25, or $4.65, or any other figure in the range of increase currently being discussed? If all it takes is a law to raise income, why not raise the minimum wage enough to make everyone middle class, or for that matter, to make everyone rich? The answer, of course, is that no law can simply dictate that some people become prosperous. In the end, people have to produce enough to justify what they are paid.

As such, the great problem with any minimum wage is that it serves to shut out of the labor market anyone not yet worth the minimum wage. An unskilled, unreliable youth, for example, may be so undependable as to be worth almost nothing. But still, if a business can hire inexpensively enough, the business may be willing to give a kid a chance and, in doing so, expose the youth to the realities of the labor market. This exposure to the work-a-day world can be vitally important to the future of a young person coming from a welfare-oriented home environment, where a growing child may never have had the opportunity to see his father or mother get up and go to work every morning.

Some years ago, PRODUCE BUSINESS worked with a community action group to hire poor youths from the inner city. To see these young men and women from the South Bronx, Harlem and sections of Brooklyn show up (or not show up) for work was enough to convince anyone that what these kids needed was not training in any given skill, but rather and opportunity to experience working. That is to say, they needed to understand that they had to get up when they would rather sleep a bit more. They needed to understand that work often involves performing tasks which they did not find personally interesting. These are not the types of lessons one learns in a job training course. This is what you learn by going to work.

As such, the great tragedy of raising the minimum wage is that doing so makes it more expensive to hire someone or to put it another way, raising the minimum wage makes it more difficult and expensive for an employer to give someone a chance. This being said, poverty is such a terrible problem that perhaps a higher minimum wage could be tolerable if it would truly lift many out of poverty. Yet, the truth is that the overwhelming majority (over 80% by most reports) of people earning the minimum wage do not live in households with income below the poverty line. This is because, overwhelmingly, the people who earn minimum wage are young people trying to earn some extra cash and are not responsible for supporting their families. Raising the minimum wage is, at best, a highly inefficient way to help the poor.

Yet, raising the minimum wage is an idea of constant political appeal. The main reason for this is clear; the individuals who will get a raise because they currently earn less than the minimum wage are identifiable people who vote and who can be specifically counted as among the beneficiaries of this legislation. On the other hand, those who will be laid off because their services are too expensive at a higher wage, or those who will never be hired because the cost of their labor was set artificially high, are unidentifiable people. These are people who don’t even know that they were hurt by this legislation.

We must always avoid setting public policy which calls for an increase in the cost of hiring people. It is this point which we have to establish as a principle. In the trade’s attempt to prevent or minimize an increase in the minimum wage, by such methods as putting forward proposals for sub-minimum training wages and the provision for increasing the minimum size of business subject to minimum wage laws, business may wind up obscuring its principles so much that it wins the battle to prevent this minimum wage increase from passing, but winds up losing the war against government mandating business benefits.

Our public policy debates serve another purpose than just getting the immediate law passed; they serve to educate the populace on the issues of our time. Business people are fundamentally pragmatic types. You have to be in order to survive in business. The problem, however, is that this pragmatism tends to obscure what the real beliefs of business people are. Business interests fail to cultivate the necessary public understanding to develop support on issues of public policy.

It is important to remember what is really at stake here in the battle over the minimum wage. A whole range of proposals have been advanced, not only the minimum wage, but also proposals to mandate that employers provide health insurance, parental leave and other benefits to employees. All these proposals have pros and cons, but the objectionable point they have in common is that all of these proposals call on those who provide jobs to take on special obligations that nobody else has to carry. If, for example, our society as a whole wants to provide a minimum income to people with jobs, then society must tax everyone fairly in order to do this. Or if our society wants to make sure everyone has health insurance and we are willing to tax everyone fairly in order to pay for this expense, then this is something that can be discussed and analyzed. However, the plan behind the proposals to increase the minimum wage is motivated by the fact that in a time of budget deficits, people who believe in activist government are finding that their ability to pass new spending programs is limited. So the latest idea is to mandate that businesses provide the various social benefits liberal congressmen would like to see provided, but can’t persuade their colleagues to appropriate money for them. These expenses, be they a higher minimum wage or mandated health insurance, basically are a tax on providing a job. Those who are foolish enough to provide jobs will have to pay these expenses. Conversely, those who do not provide jobs will be exempt from these obligations. The oldest rule in the book is that if you tax something, you get less of it, and if you subsidize something, you get more of it. As such, higher minimum wages and more mandated benefits add up to fewer jobs.

Many business people have not gotten involved in the fight against this increase in the minimum wage. The reasons are varied. In many parts of the country wage rates are so high that the minimum wage barely matters anyway. In some states, businesses work under state minimum wage laws which are already above the federal minimum. Often, the issue doesn’t seem important enough to invest time in battling against legislation. But this unwillingness to fight for a principle has a terrible cost.

The truth has gotten lost because business has been unwilling to go to bat for its principles. Business must remember that the best defense is a good offense, and they ought to be out there fighting for a repeal of the minimum wage altogether. Will they win? Probably not, at least not now. But that may not be too important. It may be more important to state the case, and in doing so, start to educate the public. It’s a lesson that may well pay off, as the issue rises again in future years.

The public has to be taught that though mandating business to provide benefits looks like a way to get something for nothing, the truth is that it is exactly the same thing as imposing a tax on job creation. And the result of mandated benefits is to lessen opportunities for Americans. What a horrible policy and what a terrible shame it is to raise the cost of giving a person a job…or a chance.  pb