Yikes! $9 per Hour

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After leaving the corporate world, I eased my way into retirement by teaching economics at National University. One of the first things I discovered was you have to get students to question what they think they know. That certainly was the case with minimum wage laws.

When bleeding heart liberals such as myself propose raising the minimum wage to improve the lot of low income workers, we know those who are lucky enough to have a job will, indeed, see their income go up. This will put pressure on their employers who will have to find productivity improvement or price increases to pay the higher wages.

Small businesses are the natural constituents of conservatives, so conservatives immediately trot out arguments to prove that a higher minimum wage is a terrible idea. Instinctively we all know that when you raise the price of something, people consume less of it, so while some low income workers will see their income go up, others won’t be able to find jobs. So economic theory cuts both ways. To resolve the issue, we need to ask if something else is also going on.

Let me take you back to 2006. At the time, the federal minimum wage was $5.15 and was last raised in 1997. There was a proposal to raise it to $5.85. Out of curiosity, I asked my then 16 year old daughter what she was paid for babysitting, and she told me $6.50 an hour. In other words, if the federal minimum wage was raised from $5.15 to $5.85, it would still be below what my daughter earned babysitting. Smart mothers paid more than the minimum wage if they wanted to be able to find a sitter for Saturday night.

I confirmed this logic with a couple of independent contractors who were students in my class at the time. When they found a quality worker, they made sure to pay more than the minimum wage to insure loyalty.

The lesson here is that Congress, in typical spineless fashion, usually only plays catch-up when they raise the minimum wage. Market forces tend to raise it before Washington does. Lots of states, including California, also raise it before Washington does. There are always a few laggards, like Texas or Mississippi, and it is in California’s interest to force the laggards to catch up to us.

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