Should Iowa Raise the Minimum Wage?

Bob works as a carpenter’s assistant for Splinter Woods, a home builder. Bob’s main job is to sweep up the sawdust with a push broom. Bob is a high school student who is paid minimum wage of $5.15. At the beginning of the day, Bob is full of energy and good humor and keeps the shop area clean. By the end of the day, Bob is tired and some of the energy that was there in the morning has faded. If the minimum wage is increased, how will this affect Bob?

Every month the Bureau of Labor Statistics, BLS, calculates the Consumer Price Index, CPI, a measure of prices for goods that the average family buys. The May CPI was 193.6 which means that Bob’s real wage is closer to $2.67. Proponents advocating raising the minimum wage point out that the buying power of the minimum wage is the lowest since 1968. Legislators are pushing to increase in the minimum wage to give a living wage for the two million workers earning this wage.

Minimum wage earners tend to be young and work in food service or service occupations. Most are part-time workers and female. More white than black are employed at minimum wage.

By my calculations, Bob’s wage would have to be raised to about $10 in order for his wage to buy goods that are inflation adjusted. The AFL-CIO recommends that the minimum wage be raised to $7.25. If the minimum wage rate is raised, what will happen to Bob?

The carpenter who hires Bob will now wonder if Bob is worth the wage he is paid. If the carpenter buys a Shop Vac for a $100, the carpenter can effectively pay for Bob after a couple of days work. Or, as the data suggests, Splinter can hire Bob for an hour a day to use the Shop Vac to clean up. In other words, Splinter will substitute equipment for labor because now that labor is more expensive, machines that used to be more expensive are suddenly profitable to use. Even though it takes no special skill to operate a Shop Vac, using machinery in particular usually does. As employers start using more machinery for labor, the wages for skilled workers will increase and the demand for minimum wage workers will drop. Workers will find that they are working fewer hours. The effects don’t stop there.

As minimum wage earners lose their jobs or have their hours cut, they will start to look for jobs anywhere they can find one even in illegal markets like the ones you find many illegal immigrants. As more and more displaced workers enter the market, the wages in these areas actually decrease. So the wages in skilled jobs increase while the wages in the unskilled or illegal market decrease.

Increasing the minimum wage has unintended consequences of increasing the wage disparity between the skilled and unskilled workers. A vicious spiral of income disparity grows. I call this the Foghorn Leghorn Law. Foghorn, the big Looney Tune rooster always rushes in to help Henry Hawk and ends up doing more harm than good. Is it ironic that a law actually increases lawlessness? Is this what our legislators want?

Some employers are also hurt. Say you are an owner of a factory that makes Ropeless Jump Ropes. You pay your workers at a wage rate above minimum wage, say $8 per hour. If the minimum wage is increased, then the wages you pay your workers has relatively decreased. Suddenly, a law has exerted upward pressure on the wages you pay. Your employees might become dissatisfied as they mistake an increase in the wages in minimum wage occupations for an increase in the values employers place on employees in these occupations. They will feel robbed.

In Barbra Ehrenreich’s book, Nicked and Dimed, she writes about minimum wage workers who work two jobs. Many of these workers clean their uniforms in bathroom sinks and find economical ways to commute to work. These workers are not lazy. I teach my students that there is dignity and respect in every job. Raising the minimum wage will benefit some workers. However, increasing the minimum wage will also have unintended consequences that hurt the very workers that the law was intended to help.